Worley Shrugs Off Global Uncertainty

Commodities | 2:03 PM

Despite recent global uncertainty, engineering contractor to the energy, resources and chemical industries, Worley, is still growing its work backlog thanks to well-capitalised customers.

-Worley's investor day highlights increased backlog
-Large-scale projects proceeding as planned
-Upside hinges on one significant LNG project
-Analysts suggests share price undervaluation

By Greg Peel

Worley ((WOR)) has for fifty years provided engineering and professional services to the energy, resources and chemical industries. In 2021 the contractor was one of the first movers in its field in announcing an aspiration to derive 75% of its revenue from sustainability-related projects.

Worley's share price has been under pressure since Trump's on again-off again tariffs sparked market uncertainty, global recession fears and a plunge in oil prices. Worley relies on capital expenditure on customer projects over potentially years of development. Heading into Worley's investor day last week, there was concern among investors a pullback in capex (from customers) may have eventuated.

So Far, So Good

Worley's trading update through to end-March appears to analysts to be broadly stable despite global macro and political uncertainty. The contractor's factored sales pipeline is up 14% in calendar year 2025 to date, excluding its Venture Global contract (more on that later), with management suggesting it has not seen a pullback in capex from key customers.

Projects having past the final investment decision (FID) stage are continuing largely as planned, however timing, and a shift in end-market/customer capex priorities, are currently favouring more transitional and traditional work, with sustainable opportunities reducing.

Worley's backlog stood at $13.0bn at end-March, up 2.4% for 2025 to date, with bookings for the nine months of FY25 running at $9.4bn, up 22% year on year. Sole sourced work also increased to 47% versus 40% a year ago, further highlighting Worley's close customer relationships, Morgans notes.

It should be noted Trump's "Liberation Day" was on April 2, but Worley has maintained FY25 (end-June) guidance to low double-digit earnings growth and underlying earnings margins of 8.0-8.5%. New contract wins to March to date of $9.4bn were slightly ahead of $9.0bn at the same time last year.

Citi found the update encouraging amid recent market volatility and reinforces the quality of Worley's customer base, which remains focused on long-term investment decisions. Citi believes Worley is well-positioned to benefit from capital re-allocation trends --whether toward traditional energy or new energy-- with flexibility to support both.

Worley acknowledged the uncertain outlook and how customers were responding, with well capitalised customers pressing ahead, and no material project cancellations or deferrals. However, the factored sales pipeline was reduced in March following a scope reduction after Venture Global elected to manage some contractors in-house.

Venture Global CP2

Worley's key near term catalyst, notes UBS, is the award of Venture Global's CP2 project, expected in mid-2025, which will support a material uplift in backlog and earnings growth into FY26.

Venture Global is building an LNG export facility in Cameron Parish, Louisiana. Worley has largely completed engineering work --roughly 25% of its estimated project revenue-- and RBC Capital sees no major hurdles to this project achieving Venture Capital's target FID by around mid-2025, subject to receiving final approval of the supplemental environmental report. At FID, RBC expects Worley to transfer up to around US$3bn into its backlog that becomes future revenue as the project is completed.

Engineering and early procurement work for CP2 Phase 1 is now some 90% complete, and Worley has realised around (A)$1.0bn in revenue so far over FY24-25. Management, however, indicated CP2 has seen a scope reduction with Venture Global assuming some procurement and construction work in-house (ie sub-contractors).

Macquarie estimates this implies total CP2 project size for Worley of $5bn versus a prior $6.5bn assumption. This is at lower risk, Macquarie notes, given Worley will be managing more of its own workforce, and with higher related margins.

Construction remains on track for commencement in the coming months, once FID is reached, with earth remediation and foundation works expected in early FY26, phasing towards more technical work which is expected to drive a greater revenue contribution in FY27.

Outside of the Venture Global CP2, Worley is currently undertaking a number of large projects, including Ma'aden's Phosphate 3 and Oxy's DAC (direct air capture, ie carbon capture) program. The contractor's resources pipeline is growing strongly in Europe, Middle East & Africa, Asia Pacific and Latin America, and for the first time, Morgans notes, resources is set to become a larger revenue generator than energy and chemicals.

Worley also sees further opportunities within the LNG market, tracking 6-7 additional projects in US/Canada and Alaska, for which management sees prospects following CP2's completion.