After a lacklustre result (despite a surprising lift in net profit) released yesterday, and given the company's reluctance to provide full-year 2015 guidance, investors must surely be wondering what's next for Worleyparsons Limited (ASX: WOR).
One possibility is that the company might be seeking to buy itself out of trouble through acquisitions.
Fairfax media quoted Worley chairman Andrew Wood yesterday as saying: 'We are well positioned to handle reasonable size acquisitions given our financial capacity', with the company reportedly seeking to continue its profit growth by acquisition.
WorleyParsons already completed two acquisitions in the first half of 2015, one of which was a consultant to the US oil/gas/chemical/petrochemical sectors. The other was Atlantic Nuclear Services, a Canadian consulting business which specialises in nuclear technology.
The businesses are expected to improve Worley's new consultancy arm Advisian, adding their expertise and client connections to the product offering.
While it's too early to tell how the additions will pan out, the decision to diversify away from the mining services sector is a good one, with conditions in that sector looking unfavourable over the near term.
However management and shareholders will want to be wary of overextending, particularly with operating cash-flow dropping by over 60% in the first half of 2015.
Running out of cash would be a major headache and potentially a nightmare, with revenue shrinking and difficult trading conditions in all of Worley's markets.
The decision to maintain generous dividend payments in this situation is a curious one, with the interim dividend being worth 6.8% if doubled for the full year.
However as management declined to provide full-year guidance, there's an additional question mark over Worley's second half earnings and dividends – all of which should add to shareholder caution.
One plus for investors is that Worleyparsons is looking 'through' present difficulties to prepare for the future, with the addition of consulting services a sound diversification away from staple services offerings.
After all a mining firm can either win or lose a contract, and a project can either go ahead or not, whereas a consultant hired to help make the decision gets paid either way.
Despite this development I urge investors to be cautious.
Management appears to be taking the right track, but shareholders have nothing to lose and everything to gain by being cautious when business conditions in a sector are so difficult.
