The Worley Ltd (ASX: WOR) share price could be well supported this morning after it posted a big lift in profits and dividend.
But it isn't only the earnings numbers that will necessarily please shareholders.
It's more the fact that the wheels haven't fallen off its controversial ECR acquisition it made last year.
Large profit surge
The profit jump and the acquisition are linked of course. On that note, management reported an 80% surge in underlying earnings before interest and tax before amortisation of acquired assets (EBITA) to $743 million.
It's underlying net profit before amortisation of acquisitions jumped by two thirds to $432 million, while aggregate revenue increased 75% to $11.3 billion.
Dividend increase despite $4.6bn acquisition
What's just as pleasing is the increase in underlying operating cash flow to $881 million from $239 million. There's also the bigger 25 cents a share final dividend (up from 15 cents) despite the $4.6 billion ECR takeover.
The large acquisition contributed significantly to Worley's top and bottom lines, as it should. But sceptics who doubt that the acquisition is working will be reassured by the boost in synergies.
Bedding down ECR going better than expected
"The integration of ECR was substantially completed during the year and we have delivered acquisition cost synergies of $177 million at 30 June 2020," said Worley's chief executive Chris Ashton.
"We have increased the target to $190 million, to be delivered by April 2021."
The synergies are on top of another $275 million it hopes to save from current operations.
Re-rating opportunity for underperformer
The reassurance could spark a re-rating in the stock given that the Worley share price is a woeful underperformer. Shares in the engineering contractor plunged 40% since the start of calendar 2020 when the S&P/ASX 200 Index (Index:^AXJO) fell 8%.
In contrast, the Seven Group Holdings Ltd (ASX: SVW) share price lost 3% although the Downer EDI Limited (ASX: DOW) share price is faring worse with a close to 50% loss in value.
Is Worley hunting for its next takeover?
As with most companies, Worley only provided a vague outlook amid the COVID-19 volatility. Management blamed the fast-changing environment for making FY21 more difficult to forecast than previous years.
However, it said the group is more resilient with the ECR business as it's better diversified across countries and industries.
Management even hinted that it might be on the hunt for further acquisitions that are inline with its transformation strategy.
It might need to given its high exposure to fossil fuels. It generated more than $5 billion from servicing oil and gas companies.
