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Here’s why the Worley (ASX:WOR) share price has sank 12%

The Worley Ltd (ASX: WOR) share price has been crunched down over 10% after giving an update for its FY21 half year result.

Worley is a company that delivers projects, provides expertise in engineering, procurement and construction. It also offers a wide range of consulting and advisory services. It covers the full lifecycle of assets.

COVID-19 business impact

Worley said that the global acceleration of COVID-19 infection rates since October 2020 has further impacted demand in the end markets.

However, Worley said it has continued to generate strong operating cash flow and improved its liquidity during the period. It’s seeing ongoing project deferrals, though almost none of the projects are actually being canceled. Worley is expecting those deferred projects to return as global economic conditions improve.

What actions are Worley taking to mitigate the impacts?

Worley said that it’s progressing its ECR acquisition cost synergies program and operational savings program. The benefits of these programs will continue to flow beyond the second half of FY21 according to management.

The other major thing that the company is doing is managing its capability during this period of deferrals. The headcount has been reduced to 47,600 as at 31 December 2020 in response to market conditions. However, the utilisation remains on target.

Worley HY21 expectations

Worley is expecting aggregated revenue to be in the range of $4.4 billion to $4.5 billion. Underlying EBITA is going to be in the range of $200 million to $210 million (EBITDA explained, though Worley’s profit measure includes depreciation).

Management said that there was strong operating cash flow to be in the range of $250 million to $255 million. There was also a reduction in net debt to approximately $1.2 billion, excluding lease liabilities. This is the lowest level of net debt since the ECR acquisition.

Outlook and summary thoughts

The company is expecting a better EBITA result in the second half of FY21 compared to the first half, which will be further supported as COVID-19 related economic circumstances improve.

Worley also said that there is a clear shift in the political environment in the USA as well as ongoing policy rollout and anticipated increases in investment in the UK, Europe and Canada, providing near-term opportunities in hydrogen, electrification, carbon capture, offshore wind and nuclear, while North American remains buoyant in renewable fuels and circular economy projects.

This sell-off could be a short term opportunity to buy Worley shares under $10, if you were already interested in buying shares. However, it’s not the type of business I’d normally buy for my portfolio. One of the only resource-connected shares I’d be happy to buy is RPMGlobal Holdings Ltd (ASX: RUL).

Instead of Worley, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.

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Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

Not only are we offering these 11 investment ideas completely FREE, we've also released an in-depth podcast to go with the report!

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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