Category: Financial Markets
Business Strategy & Outlook:
Worley is one of the largest global providers of engineering and professional services to the oil, gas, mining, power, and infrastructure industries, with about 59,000 employees and more than AUD 11.0 billion in annual revenue. Strong relationships with global resource and petrochemical firms, along with solid levels of long-term recurring work, provide some element of switching cost support, a competitive strength. While the traditional engineering, procurement and construction management space is competitive and few firms have the skills and capacity to take on the work available in many of the key areas in which Worley operates. Most contracts are of a cost-plus nature, so the risk from project delays and cost overruns is minimized. The highly skilled, specialist nature of WorleyParsons’ work means it can earn higher margins than traditional engineering and construction firms.
Worley grew rapidly during the past decade, boosted by numerous acquisitions, and is well placed to renew growth in the longer term when economic conditions and energy prices improve. Activity over fiscal 2017 through to 2018 was weak, given project deferrals and lower energy prices. But measured long-term growth is returning. The environmental and infrastructure segment should benefit from long-term demand growth for new power generation assets. Revenue is derived from recurring maintenance-style work under Worley’s “Services” business stream. Contracts include long-term asset management, facility operation and maintenance work. Further, Jacobs ECR’s inclusion delivers enhanced earnings diversification and more consistent earnings with less cyclical capital expenditure, particularly from chemicals. The merged company balances revenue contribution from Worley’s upstream hydrocarbon segment to 39% from a prior 62%. Downstream grew to 20% from 13% and chemicals to 23% from just 6%. Chemicals in particular is a favorably less cyclical segment driven by population and GDP growth. The merged company also enjoys double the U.S. revenue contribution at 33% from 13%, while reduced 21% from 29% Europe, and 10% from 17% ANZ contributions.
Financial Strengths:
First-half fiscal 2022 net operating cash flow declined sharply, down 71% to just AUD 73 million. It reflects reversal of higher-than-average days payable outstanding levels and trade payables at end June 2021, temporary in nature. This saw net debt excluding operating leases rise 12% to AUD 1.4 billion versus levels six months prior, gearing still conservative at 20% but net debt/EBITDA somewhat elevated just above 2. With cash flows to improve from now, the sub-1.0 net debt/EBITDA by fiscal 2024, including an assumption of a 75% dividend payout ratio. Leverage is within management’s target range of 25%-35%. Net debt/EBITDA may look a little elevated, but this reflects the AUD 4.6 billion takeover of Jacobs heading into a pandemic. Worley’s average debt maturity is relatively short at 2.4 years and anticipated long-term debt options will need to be explored. With positive implication for the outlook, Worley’s work backlog increased 6% to AUD 15.1 billion at end December 2021 versus AUD 14.3 billion at end June 2021. The proportion of sustainability contract wins was a higher 11% versus 4% for traditional work, in line with the direction Worley is strategically targeting. Traditional work still represents 75% of the backlog at this stage, but Worley aspires to ultimately flip this ratio in sustainability’s favor.
Bulls Say:
- Worley is ideally positioned to benefit from any future increase in capital expenditure from energy markets, particularly unconventional oil and gas, coal, and offshore oil.
- Power, infrastructure and environmental markets should all grow solidly in the medium to longer term as developing nations seek to upgrade their populations’ quality of life.
- Little of the company’s own capital is placed at risk on projects, and the risks of rising wages are limited because most contracts cover Worley’s costs plus a margin.
Company Description:
Worley is a leading global provider of professional services, such as engineering, procurement, and construction management, to the oil, gas, mining, power, and infrastructure sectors. Purchase of Jacobs ECR in April 2019 reduced revenue contribution from hydrocarbons to just over 50%, from a prior 75%-80% position. Metals and mining contribute 23% and infrastructure and chemicals the balance. Worley has a global presence with about 59,000 staff in more than 50 countries. It has a strong presence in many developing economies, including Africa.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
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Business Strategy & Outlook:
As the leading U.S.-based cryptocurrency exchange, Coinbase has positioned itself as the reliable on-ramp to the cryptocurrency space for new and experienced cryptocurrency traders alike. The company’s reputation, regulatory compliance, and record as a custodian have allowed it to maintain transaction fees above many of its peers despite operating in a crowded field with hundreds of competing firms trying to grab market share in the rapidly growing space. Unlike traditional exchanges in the U.S., Coinbase fulfills multiple roles in the trading ecosystem by acting as an exchange, asset custodian, and broker.
Coinbase has continued to branch off into adjacent businesses offering cryptocurrency collateralized loans, a crypto debit card, blockchain infrastructure support, and data analytics services. While these new businesses expand its presence in the cryptocurrency space and add new revenue streams, the company still earns the majority of its income through the transaction fees traders pay when they trade on Coinbase’s platform. These fees are charged as a percentage of trade’s total value. Additionally, the bulk of Coinbase’s trading revenue comes from retail traders who are drawn by strong cryptocurrency markets and repelled by weak ones. This creates a strong correlation between Coinbase’s trading fee revenue and the size cryptocurrency market. Due to its breadth of its service offerings and the connection between cryptocurrency prices and trading revenue, Coinbase’s short- and long-term results are deeply tied to the health and growth of cryptocurrencies as an asset class. Cryptocurrency adoption continues to rise, but questions regarding the long-term viability of cryptocurrency, and the role of speculation in current market prices remain unanswered. Furthermore, Coinbase dramatically increased its spending in 2021, and while recent cost-cutting moves have reversed some of this growth, the company is likely to enter a prolonged period of unprofitability should cryptocurrency prices and trading volume not recover in short order.
Financial Strengths:
Coinbase is in an excellent financial position, particularly after receiving an influx of capital from private-investment-in-public-equity investors coinciding with its direct listing on the Nasdaq exchange. Coinbase saw a spike in trading volume in 2021, leading the company to generate more net income in the first quarter of the year than in the entirety of 2020. As a result, the company ended March 2022 with more than $6 billion in cash and $1.3 billion in cryptocurrency against less than $3.4 billion in debt. The decision to keep strong cash reserves makes sense, given how volatile the company’s revenue generation can be. Coinbase needs to keep sufficient financial reserves to protect itself in the event of a major market collapse. Staying relatively unleveraged will be an important step in keeping the company financially secure in the long term through market cycles, particularly as further losses are expected for Coinbase as cryptocurrency markets remain weak.
Bulls Say:
- Coinbase has established itself as the leading U.S. cryptocurrency exchange and established a strong reputation for security in an industry filled with risk for traders.
- Coinbase has been able to accelerate the rate at which it lists new cryptocurrencies, giving it more exposure to the growth of the asset class.
- There is a global market for cryptocurrency. Regulatory approval from international regulators will allow Coinbase to expand its operations and increase its footprint globally
Company Description:
Founded in 2012, Coinbase is the leading cryptocurrency exchange platform in the United States. The company intends to be the safe and regulation-compliant point of entry for retail investors and institutions into the cryptocurrency economy. Users can establish an account directly with the firm, instead of using an intermediary, and many choose to allow Coinbase to act as a custodian for their cryptocurrency, giving the company breadth beyond that of a traditional financial exchange. While the company still generates the majority of its revenue from transaction fees charged to its retail customers, Coinbase uses internal investment and acquisitions to expand into adjacent businesses, such as prime brokerage, data analytics, and collateralized lending.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
