The Worley Ltd (ASX: WOR) share price received a boost in today’s trading after analysts at Goldman Sachs rated the company a Buy, and raised the 12-month price target by 27% to $15.70. Following the announcement, the Worley share price lifted 2.43% to $12.42.
Why did Goldman rise its target share price
Goldman believes that Worley’s exposure and transition to renewable energy projects will drive earnings growth and reduce its cyclicality. The broker says that Worley is well-positioned to leverage its expertise as the industry transitions from fossil fuel to renewable energy.
As a result of this industry pivot, Goldman believes that Worley’s sales will grow from an estimated $345 million in the 2020 financial year to $2.5 billion in the 2025 financial year. Worley’s revenue share from renewable energy’s projects will also grow from 5% of total earnings before interest and tax (EBIT) currently, to 22% in 2025, the broker says.
This forecasted revenue, combined with its exposure to the chemicals industry, will increase Worley’s non-cyclical end-markets from 48% currently to 65% in 2025.
What else did Goldman say?
Goldman says that its analysis was made on the back of an International Renewables Energy Agency (IRENA) forecast showing that $49 trillion to $78 trillion of investment will be made by the industry globally towards the renewable sector by 2030 across various emissions scenarios. It says that while Worley’s direct exposure only represents a small percentage of these trillions of dollars, it still translates to around $489 billion of the pie over the 10 year period.
Goldman believes that going forward, Worley’s projects will increasingly shift from designing and maintaining complex fossil fuel energy projects, to designing and maintaining energy transition and renewable activities.
Quick take on Worley
Worley provides engineering, procurement and construction expertise to the chemicals, power, and the mining and minerals sectors.
Recently, the company has been defending a class-action lawsuit brought by a group of shareholders who said they had suffered losses as a result of purchasing Worley’s shares between 14 August 2013 and 20 November 2013. The lawsuit alleged that Worley’s conduct pertaining to its earnings guidance and subsequent performance caused these losses.
Last week, the judge ruled in favour of Worley by dismissing the claims, however the case is currently being appealed to the higher courts.
Worley’s share price in 2020
Like most energy companies, the Worley share price has come under enormous pressure in the year of the coronavirus pandemic. The share price started the year at $15.34 before plummeting in March to $4.90. It has since regained some of its value to trade today at $12.42. The company commands a market cap of $6.4 billion at this price.
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