The Worleyparsons Limited (ASX: WOR) share price surged to a two-week high on Wednesday and is the best performing stock on the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index.
Worleyparsons' share price increased by 10.5% to $15.55 with the stock edging out the Syrah Resources Ltd (ASX: SYR) share price, Infigen Energy Ltd (ASX: IFN) share price and Galaxy Resources Limited (ASX: GXY) share price to claim the top spot on the leader board.
Shares in the oil and gas engineering services group have rocketed higher on news that its largest shareholder, Dar Group, is taking up all of its entitlements under the retail entitlement offer.
This is a big deal as there were concerns that Dar Group would not participate in the capital raising to help fund Worleyparsons' latest acquisition of US-based Jacobs Engineering Group Inc.'s Energy, Chemicals and Resources division (Jacobs ECR).
While the retail entitlement offer is underwritten, the underwriters would have been left with a circa $476 million headache as they would need to place that big chunk of shares which Dar Group is walking away from.
This would leave an overhang in the market as the institutions left holding the excess stock would drip feed the shares into the market – depressing Worleyparsons' share price for weeks if not months.
The 1-for-1.47 retail entitlement offer will raise around $1.1 billion and this brings the total amount raised to around $2.9 billion if the institutional component of the raising is added into the mix.
Investors can now finally focus on the fundamentals of the acquisition and Jacobs ECR looks to be a great fit with Worleyparsons as the business will give the ASX company a significant exposure to the US oil and gas sector.
US energy companies are experiencing a boom with rising global crude prices supporting a surge in activity in that market.
I am a shareholder in Worleyparsons due to the bright outlook for the stock thanks to the stronger for longer oil price and this transaction only adds to my enthusiasm for the stock even though the deal looks to be fully priced.
However, strong growth in the US and my upbeat expectations for the US dollar give me additional reasons to hold the stock.
By coincidence, I bought extra shares in Worleyparsons just the day before as I wasn't going to participate in the entitlement offer. I'll be damned if I paid $15.56 per new share under the cap raise when I can top up my holdings at around $14.00 a pop.
I think investors should be exposed to the energy sector and Worleyparsons provides a better alternative than Woodside Petroleum Limited (ASX: WPL) or Santos Ltd (ASX: STO) from a valuation perspective.
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