Question: Any thoughts on Worley Parsons (WOR)? Is it a Buy, Sell, or Hold?

Answer (By Paul Rickard):  I have always found Worley Parsons a fairly complex company to understand, with its geographically diverse operations. Consequently, it has never been a stock that has been high on my radar.

The half-year result released on 26 February met market expectations, and the company reaffirmed its guidance for the full year. This would result in an underlying profit in the second half of $160 million to $200 million, compared to $101 million for the first half.

Overall, the market seems neutral to mildly positive on WOR. According to FN Arena, broker sentiment is +0.3 (scale is most negative at -1.0, most positive at +1.0), with a consensus target price of $18.31 (a reasonable premium to the current price of approx $15.20). The stock is trading on a FY14 forecast PE of 13.5, and for FY15, on a multiple of only 11.2.

While the stock is quite cheap according to these measures, I am not quite there at the moment in wanting to buy it. As I mentioned at the outset, I find it quite hard to understand – and feel that there are other companies where the business drivers and risks are easier to appreciate.

Question 2: I would appreciate if one of your experts would comment on the suitability of the purchase of BHP shares, particularly in the likelihood of a share buyback with large tax credits for either my wife [who will pay no tax or very little in this current tax year] or our SMSF.

Answer 2 (By Paul Rickard): As the largest stock on the ASX and arguably one of Australia’s few really global companies, I think BHP should be part of pretty well all SMSF equity portfolios. The main question is around the weight – whether at around index weight of approximately 9.3%, or below index weight at, say, 5.0%, or for a more growth-oriented portfolio, potentially above index weight at, say, 12.0%.

The weighting will, of course, depend on factors such as the financial objectives of the individual SMSF, the appetite for risk, the members’ views about the attraction of the resources (materials) sector and, in particular, the medium term outlook for BHP.

Without an understanding of your objectives, I can’t advise you as to what weighting may be suitable for your fund.

I think it is likely that BHP will announce a share buyback of some description this year, and hopefully, this will be an ‘off-market’ buyback where the purchase price will include a franked dividend component. These buybacks are generally very attractive to taxpayers paying tax at low marginal rates or not paying tax – and unattractive to taxpayers paying tax at high marginal tax rates (eg. 46.5%). SMSFs (either in accumulation or pension mode) should find any such buyback attractive.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

Also in the Switzer Super Report:

• Roger Montgomery – Carsales has plenty of potential
• Charlie Aitken – Still banking on Queensland
• Staff Reporter – Buy, Sell, Hold – what the brokers say
• Fundie’s Favourite – Domino’s delivers for shareholders
• Penny Pryor – Short ‘n’ Sweet – the mining giants
• Tony Negline – What to do when all SMSF trustees die