Engineering company Worleyparsons Limited (ASX: WOR) announced last week it will implement a restructuring in light of the mining pullback. It follows similar moves by Leighton Holdings Limited (ASX: LEI) and Monadelphous Group Limited (ASX: MND) to scale back and adjust the business to meet the current business realities.
All have been affected and all are changing to adapt. This can create opportunities for investors who closely watch the industry. The higher revenues and earnings of the past several years are tapering down, yet these companies are still profitable. With a restructuring, investors will potentially get a better performing company with lower cost and less waste.
The better companies will reduce debt and secure extra work in other sectors. The market is selling them off from depressed expectations and there is a portion of uncertainty about how quickly mining can manage an upturn. If that became clearer, then the market would probably begin to value them upwards.
WorleyParsons will restructure into three business lines called Services, Major Projects and Improve. It plans to reduce overheads to create a more competitive cost structure. The three lines will be fully accountable for customer satisfaction and generating sustainable earnings within their business. This will streamline group functions at a corporate level.
The company projects this restructuring will cost about $35 million. Improvements in margins and lower costs are expected to be seen in the next financial year. In its interim report, it reaffirmed the earlier FY2014 full year guidance for underlying net profit to be $260 – $310 million. That would be 14%-18% down from FY2013.
The share price fell about 27% from $22 to $16 in November when the company announced the downwardly revised earnings. Currently it is $16.71 with a 14.7 PE. The dividend yield is 5.2%.
Foolish takeaway
Companies like WorleyParsons and Monadelphous have good track records of performance and earnings. Investors will need to read up on the progress of their restructurings, but the improvements will eventually grow as the seeds of their revival.
