Worley (WOR) - Uncertain backdrop

Worley provides professional and project management services to the energy, chemicals, and resources sectors in the Americas, Europe, the Middle East, Africa, Australia, the Asia Pacific, and China. The company was formerly known as WorleyParsons and changed its name to Worley in October 2019. Worley was founded in 1971 and is headquartered in Sydney, Australia.‍

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Worley (WOR) has further downgraded guidance for FY26 underlying earnings before interest, tax and amortisation (EBITA) as a result of the Middle East war, and now expects a negative impact of circa $60 million, up from $30–40 million prior and above Ord Minnett’s previous estimate of $45 million. The contractor to the resources and chemical industries noted no customers had cancelled any projects, but disruptions to existing projects and delays to starting new developments were still an issue. In addition, no new contracts were being awarded amid uncertainty over the strength of the fragile cease-fire and the reopening of the Strait of Hormuz. Worley also flagged an unfavourable currency impact of $50 million on second-half FY26 EBITA from the strength of the Australian dollar, above our previous forecast of $30 million.

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Post the update, we have cut our EPS estimates by 7.2%, 8.2% and 2.7% for FY26, FY27 and FY28, respectively, which leads us to downgrade our target price to $12.70 from $13.10. There remains considerable uncertainty over short-term earnings for Worley and its peers. More broadly, we highlight the change in Worley’s business mix, with a modest shift to engineering, procurement and construction (EPC) work, i.e. larger developments and responsibility for full project delivery, a business segment that is higher risk than traditional consultancy and advisory.

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Worley does not have the same exposure as the EPC sector’s major operators, e.g. Italy’s Maire or France’s Technip Energies, but its risk profile has increased versus consulting and advisory peers such as US-based Jacobs Solution and Fluor Corp. There is apparent value on offer in Worley but the uncertainty around near-term earnings, and what we see as an increasing risk profile, mean we cut our recommendation to Hold from Accumulate.

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