Portfolio Update: Purchase of Worley (ASX: WOR)

Portfolio Update:
Purchase of Worley (ASX: WOR)

14th April 2025

Across the Australian Equity component of investor portfolios (Income Tilt), we have bought Worley (ASX: WOR).

Worley is a global consulting firm that provides services to the Energy, Chemicals & Resources industries. They consult on projects ranging from traditional oil & gas developments to more contemporary energy transition projects including the development of renewables, batteries, hydrogen and CO2 capture. They are regarded as a market leader on Oil & Gas, Energy transition and renewables projects. The services they provide involve project delivery, engineering, procurement, and construction.

We are attracted to Worley for the following reasons:

Market leader in energy transition consulting work
Recognition for superior technical capabilities within the industry
Lower risk contracting structure – cost plus vs lump sum
Scale and depth of data provides competitive advantage over peers
Exposed to activity in the energy sector but not price

Worley has key levers for value creation:

Shift to higher value business mix
Margin expansion initiatives

Firstly, the significant investments the business has made in building out their capabilities is leading to a shift towards higher value work being won, specifically relating to the energy transition. We can see this in the strong revenue growth generated, the quality of the clients they have won work from and their ability to win contracts on a cost-plus basis (which anecdotally is unique within the industry).

Secondly, over a number of years they have been restructuring their workflows to ensure high value employees are spending as little time as possible on lower value work. In recent results we have started to see these efforts benefit margins and expect this to continue in the medium term. In addition to this the shift towards higher value projects as mentioned above will also contribute to margin expansion.

We have funded the purchase of Worley via sale of Nine Entertainment (NEC.ASX). The decision was driven by two main considerations:

The likelihood of Co Star abandoning the bid for Domain Group (“DHG”) given the current market uncertainty and the likely ensuing sell-off;
The Co Star bid for DHG is accepted with NEC ultimately (timeframe unknown) returning cash to shareholders. With the sale of DHG, the remaining business is unlikely to rejoin the S&P ASX 100 Index, our investable universe, within any reasonable timeframe. In this scenario the policy would require us to sell the position.

In addition to this, with some of the banks due to report results next month we are repositioning the portfolio to pick up additional fully franked dividends by adding National Australia Bank (NAB.ASX) and increasing our weighting to Westpac (WBC.ASX). To fund this, we have reduced our weight to Sonic Health Care and Perpetual Group.

As always, thank you for your ongoing support, it is very much appreciated. If you have any questions or would like more information, please contact your adviser.

Warnings and disclosures

This material has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before making an investment decision based on this advice you should consider whether it is appropriate to your particular circumstances, alternatively seek professional advice. Where the General Advice relates to the acquisition or possible acquisition of a financial product, you should obtain a Product Disclosure Statement (“PDS”) relating to the product and consider the PDS before making any decision about whether to acquire the product. You will find further details of the service we provide and any cost to you within the Financial Services Guide. Any references to past investment performance are not an indication of future investment returns. Prepared by EP Financial Service Pty Ltd ABN 52 130 772 495 AFSL 325 252 (“Elston”). Although every effort has been made to verify the accuracy of the information contained in this material, Elston, its officers, representatives, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this material or any loss or damage suffered by any person directly or indirectly through relying on this information.