Fund manager DNR Capital has added construction contractor WorleyParsons to its Australian Equities High Conviction Fund portfolio, backing a recovery in the company’s share price after a long decline.
In its latest investor report, DNR says: “Earnings appear to be bottoming as global energy players are signaling a return to capex growth. Headcount has stabilised and utilisation is on target, which bodes well for future earnings.”
WorleyParsons delivers a variety of large-scale construction projects, provides expertise in engineering and procurement, and offers a range of advisory services to the hydrocarbons, mineral, metals, chemicals and infrastructure sectors.
A number of competitors have left the market, which position WorleyParsons well to win further work, DNR says.
It likes the fact that the company takes on little construction risk, with 85 per cent of its work undertaken on a fee basis.
Its balance sheet had been under pressure after the company disclosed in its December half results that $230 million remains outstanding from four state-owned enterprises. “Management has since provided an update that it is making good progress on collecting the remaining balance,” DNR says.
On the ESG front, WorleyParsons has assisted clients in delivering water and waste-water management programs that comply with environmental regulations, are ecologically sustainable and are cost effective.
The company has capabilities in groundwater exploration, protection and remediation, surface water and watershed management, rainwater harvesting, potable water treatment, recycling and reuse and desalination.
WorleyParsons trades on a price-earnings multiple of 18.7 times estimated 2017/18 earnings. “We view the valuation as attractive, given bottom-of-the-cycle earning. After a number of difficult years, there are indications that the cycle is turning for the company,” DNR says.
“Management has aggressively cut costs during its downturn and is well positioned to take advantage of improving conditions.”
WorleyParsons fits into one of a number of growth themes that DNR is pursuing. They include SaaS businesses, such as MYOB and IRESS; internet businesses, such as Seek and REA Group; infrastructure developers, such as Lend Lease; mining services companies, such as ALS and WorleyParsons; companies servicing the ageing population, such as Healthscope; companies able to extract merger synergies, such as Janus Henderson Group and Tatts Group; and logistics companies, such as Qube Holdings.
The DNR fund produced a return of 10.4 per cent over the year to the end of August, compared with the 9.79 per cent rise in the S&P/ASX 200 Industrials Accumulation Index over the same period.
Over the past two years the fund has retuned 12.9 per cent a year, compared with a 9.5 per cent rise in the index.
