Worley Shrugs Off Global Uncertainty

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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.

Valuation

Worley showcased its digital capabilities at its investor day, highlighting tools aimed at reducing engineering workload and project costs. While Citi sees long term value from scaling these initiatives across its global operations, quantifying the margin uplift remains challenging near term.

Around 21% of Worley’s $500m share buyback is now complete with the company having repurchased $110m of stock since March. Management has flagged this has been much more accretive than it had originally modelled.

On the other hand, Worley recently refinanced a large portion of its debt maturing in FY26. RBC Capital estimates this has increased Worley’s cost of debt from slightly above 4% to just under 5%.

On the balance of the buyback, increased debt cost, reduced CP2 revenues and a general expectation of slower growth in FY26, brokers have reassessed their target prices for Worley. That said, all five brokers monitored daily by FNArena covering the stock retain Buy or equivalent ratings, albeit Ord Minnett is yet to update post investor day.

Worley is leveraged to robust structural tailwinds associated with capital investment in sustainable and transitional projects globally, Morgans notes. As an early mover within this space, the broker sees the company well positioned to selectively win share of this investment across core energy, chemicals and resources markets.

Morgans notes the stock is trading at a discount to its long-term average PE, hence an Add rating, with its target cut to $16.80 from $17.70.

UBS continues to see value in Worley, with the stock trading at a one-year forward PE of 16x (excluding CP2), well below the 24x the stock traded at during the early stages of the last energy capex cycle. The key near term catalyst is the award of the CP2 LNG contract.

UBS has a Buy rating and sticks with a $22.00 target.

Macquarie’s Outperform rating is supported by a solid update and FY25 guidance affirmation, a slightly increased backlog and sales pipeline (ex CP2). The stock is tracking the weaker oil price, Macquarie notes, despite diversity in resources/chemicals and trades more than -20% below earnings per share correlation and lagging global engineering peers year to date.

Macquarie’s target rises to $15.85 from $15.65.

Citi has slightly trimmed its FY26 numbers, but still expects earnings and margin growth to remain supported by strong macro demand for energy transition and infrastructure services. Citi has retained its Buy rating and $18.00 target.

The consensus target price among the five brokers is $17.91, suggesting significant upside, but that’s on a range from $15.85 (Macquarie) to $22.00 (UBS).

After rebasing earnings forecasts, Goldman Sachs notes its valuation framework suggests the share price is capitalising near term earnings (FY25-26) levels that are -15-20% below consensus forecasts. Goldman cuts its target by -4% to $17.25 and retains Buy.

Worley’s factored sales pipeline resource outlook is strong, acknowledges RBC Capital, but this has been more than offset by the CP2 Phase 1 scope reduction. Sustainable opportunities are reducing, offset by increased transitional and traditional work, while Worley’s cost of debt has increased after completing a major debt refinancing.

To that end, RBC sticks with a Sector Perform rating (equivalent to Neutral/Hold) and a target of $16.50, down from $17.00.

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