Why WorleyParsons Ltd Shares Slumped Today

Oil and Power Industry

What happened to WorleyParsons’ share price?

Shares of WorleyParsons Ltd [ASX:WOR] fell more than 12% today as the company revealed outstanding debts of $230 million from state government-owned businesses, and a loss of $2.4 million.

Why the WOR share price dropped on Monday?

WorleyParsons is in the services business, primarily to energy, resources, and infrastructure industries. The company saw tremendous growth during the early to mid-2000s as the resources sector boomed.

Naturally, that came to an end during the 2008 crash. But over the past year, the stock price has rebounded as commodity prices have risen, and low interest rates have made it more attractive for companies to go into debt. WorleyParsons’ long term debt has risen from $631 million in 2011, to $990 million during the 2016 financial year.

But despite that rebound, the company has still fallen into an interim loss, which has forced the company to increase its cost-cutting program. That perhaps hints at further pressure on revenue and profits in the year ahead. Hence the reason why investors have sold the stock in droves today.

What now for WorleyParsons Ltd?

Many investors may see this as an opportunity to buy a reasonably well run company at a big discount. However, with the company’s decision to again not pay a dividend, it makes it hard to justify buying the stock until there is a clearer picture on the cost-cutting program.

Until WorleyParsons gets its cost structure under control, it’s hard to see how it can reintroduce a dividend soon.

By Kris Sayce

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Kris Sayce

Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms.

A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Markets and Money e-newsletter in 2005.

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