Worley Awaits Peace In The Middle East

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Resources contractor Worley has been forced into a second earnings downgrade due to the war, but a Gulf rebuilding process offers opportunity.

• Worley cuts FY26 earnings guidance for a second time
• Middle East war and a higher Aussie dollar to blame
• Brokers highlight the post-war Gulf rebuilding opportunity
• Timing of peace key for Worley's FY27 outlook

By Greg Peel

Resources and chemicals contractor Worley ((WOR)) has been forced to further downgrade its FY26 earnings guidance as a result of the war in the Middle East. Having estimated a -$30-40m reduction in April, that has now been increased to -$60m as the war drags on.

The good news is no customers have cancelled any projects, but disruptions to existing projects and delays to starting new developments are still an issue.

In addition, no new contracts are being awarded amid uncertainty over the strength of the fragile ceasefire and the reopening of the Strait of Hormuz.

The bad news is Worley also flagged an unrelated unfavourable currency impact of -$50m on second-half FY26 earnings from the strength of the Australian dollar, exacerbated by a growing percentage of North American project work.

The Americas represented 48% of revenue in the first half.

Change in Mix

There remains considerable uncertainty over short-term earnings for Worley and its peers.

More broadly, Ord Minnett highlights the change in Worley’s business mix, with a modest shift to engineering, procurement and construction (EPC) work, meaning larger developments and responsibility for full project delivery, a business segment that is higher risk than traditional consultancy and advisory.

Worley has not provided any update to its underlying FY26 earnings margin (ex- procurement) guidance of 9.0-9.5%, which was previously expected to be maintained.

RBC Capital also points to the change in business mix. Over the first half, Worley experienced an increasing proportion of its earnings from construction and fabrication work, as well as procurement, as it moved into the later stages of projects such as Venture Global CP2 Phase 1.

RBC would normally expect this to lead to lower earnings margins.

US-based Venture Global’s CP2 is an LNG export facility project with associated pipeline on the Gulf of Mexico coast of Louisiana.

Nor has Worley provided any update to its aggregated revenue growth over FY26 for it to exceed the 3.7% year on year delivered in FY25, RBC notes.

Over the first half, Energy in America represented 50% of total revenue, followed by Resources at 29%, and Chemicals at 21%.

The changed composition of first half Aggregated Revenue appears to be driven more by what RBC would normally classify as lower margin work in Procurement 33%, and Construction and Fabrication 16%.

Darkest Before the Dawn

While Worley’s second downgrade led to a -10% share price sell-off on the day, brokers highlight opportunities that lay ahead.

It all comes down to how long the Middle East “ceasefire” lasts, if that’s what it is, and when actual peace can be declared.

Middle East and currency impacts are greater than expected but importantly, Macquarie notes, impacts are contained to the Middle East.

Worley should be a beneficiary of a Gulf oil & gas rebuild as the conflict ends, along with return of deferred growth projects.

The market will require evidence that deferred projects are resuming. Macquarie believes this should occur during the first half FY27 (which begins this week) assuming a durable peace deal.

As a specialist EPC contractor in oil & gas with strong Middle East relationships developed over many years, Worley could gain a future earnings benefit from its potential involvement in reconstruction work at damaged Middle East energy facilities, RBC agrees.

However, RBC also sees no guarantee that Worley will win key contracts, hence this is not factored into forecasts.

Global customer sentiment is also likely to improve post a sustained peace deal, Macquarie suggests, allowing customers to focus on an enduring energy security theme. In the medium term, Macquarie sees an opportunity for investment in regional pipeline and export infrastructure.

Macquarie thinks Worley’s Americas operations also stand to benefit from increased investment in the North American LNG and chemicals sectors. The oil price is lower than it was but still above mid-US$60s/bbl level of 2025, and the energy security theme should carry through post-war.

The second half is seasonally stronger, so Macquarie anticipates a -3% drop in first half FY27 earnings year on year before an assumed stronger second half –-up 13% off a low base– as Middle East activity recovers, CP2 construction ramps-up, and there is a part benefit from Worley’s planned -$120m cost-out.

In the medium to longer term, Worley’s push into Complex Critical Infrastructure, e.g. power, data centres, nuclear, water and ports, is likely to more than double its total addressable market and grow at faster rates than ECR, Macquarie notes.

 Staff vacancies at Worley are at 18-month highs, having more than doubled since the  January lows.

Macquarie points out vacancies are a lead indicator for headcount and revenue growth.

Maintain the Faith?

After a tough FY26 for Worley featuring both the war and tariffs, Macquarie believes the broader environment should get better from here.

The question is one of timing.

Macquarie expects improved activity in the Middle East during the first half of FY27 with a return of deferred projects and oil & gas rebuild, assuming a durable peace deal.

Time will tell whether Macquarie is being optimistic on timing.

Macquarie retains an Outperform rating, cutting its price target to $12.00 from $13.70.

Citi sees no change to Worley’s underlying business with the backlog intact and structural energy demand supportive of the medium-term outlook. The recent Saudi Aramco framework agreement for NEOM work reinforces this view despite near-term delays.

NEOM is Saudi Arabia’s large-scale, future-focused megaproject in its Tabuk region, which aims to build smart cities, sustainable industries and high-end tourism.

Overall, Citi thinks the fundamentals remain intact and the sell-off appears to be overdone. This broker retains a Buy rating, with a target cut to $12.50 from $13.60.

Worley does not have the same exposure as the EPC sector’s major global operators, Ord Minnett notes, but its risk profile has increased versus global consulting and advisory peers.

There is apparent value on offer in Worley but the uncertainty around near-term earnings, and what Ord Minnett sees as an increasing risk profile, mean a cut to the broker’s recommendation to Hold from Accumulate, and a target cut to $12.70 from $13.10.

RBC Capital has reduced its target by -7% to a more pessimistic $11.50 and retains Sector Perform.

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