WorleyParsons (ASX:WOR) provides professional engineering and management services to the energy, resource and complex process industries.

WOR offers a broad range of services, from feasibility studies to design and project services, and is exposed to a number of sectors.

The group is a leader in its industry and has established long-term relationships with a number of companies, including some blue chip stocks.

Despite facing obstacles in FY11, WOR was able to grow its profit and revenue, with the Hydrocarbons business driving the result.

Moreover, WOR is ideally placed for the future, as the lure of higher energy prices is likely to drive demand for its services from the bigger oil companies.

FY11 results highlight underlying strength

On 24 August, WOR reported a 25% lift in FY11 net profit to $364.2 million. On an underlying basis, profit was up 2.5% to $298.5 million, matching previous guidance.

A final dividend of 50 cents was declared, bringing the full year dividend to 86 cents per share.

It was a solid result considering WOR faced a number of headwinds such as the strengthening AUD, Middle East instability and natural disasters.

The result didn’t really reflect the strength of the underlying business. Revenue grew 19% on-year to $5.9 billion, driving by a strong performance in the Hydrocarbons business.

The group was also in financially strong shape, with a gearing ratio of just 22% and operating cash flow growth of 5.1% in FY11. Moreover it had more than 50% in untapped debt facilities.

Taken together, this tells us WOR has significant firepower to expand its business –organically and/or through M&A activity.

The group forecast good underlying profit growth in FY12, continuing the momentum displayed in the 2H11. The guidance was reaffirmed at WOR’s AGM last week.

Hyper about Hydrocarbons

The majority of WOR’s earnings are in the Hydrocarbons division. Hydrocarbons are organic compounds, found mostly in crude oil.

WOR’s leverage to the energy market is a key attraction, particularly as demand for oil and gas is expected to strength in coming years due to emerging market growth.

The recent market turbulence has raised questions about faltering energy demand in the developed economies, which has been a factor behind WorleyParson’s recent share price weakness.

However we believe these fears are overblown given the oil supply/demand imbalance (dwindling oil supplies vs. growing energy demand) is only expected to worsen in coming years.

The lure of energy price appreciation at a time of growing demand is likely to see the big energy companies continue their ramp up of capex spending, putting WOR in an ideal position to accelerate its contract win rate.

LNG is the future

The big oil companies have also recognized that the world is moving towards more unconventional sources of energy such as LNG.

There are number of massive projects being undertaken throughout Australia, and WOR has had a hand in some of the key ones such as Pluto and more recently, Wheatstone.

WOR won a $235 million contract from Chevron for the construction of management services at the Wheatstone Project.

WOR’s experience in developing LNG projects, coupled with the established relationships it has with its blue-chip clients, makes it ideally placed to benefit from this increased focus on alternative energy.

Outlook

As the global growth engine continues to shift from developed economies to the developing regions, there will be increased demand for commodities.

As mining companies look to meet this demand, there is going to be a significant increase in capex activities over the coming years.

This will strengthen the market for WOR’s services, providing it with plenty of growth opportunities, especially in the hydrocarbons space.

WOR is in sound financial position and is expected to continue the positive earnings momentum into FY12.

The long-term relationships WOR has fostered with its blue-chip clients is likely to yield considerable benefits for the company, particularly as miners look to capitalize on rising commodity prices as well as the world’s shift to alternative energy sources.

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Mineral Deposits (ASX:MDL) is an exploration and development company, focussing primarily on the Grande Cote Minerals Sands Project in Senegal.

Grande Cote is a world class ore body that extends more than 100 kilometres and boasts high quality zircon and ilmenite.

Growing demand for mineral sands means production from Grande Cote is likely to occur in a period of rising prices, boding well for future profitability.

The market has acknowledged this, and as a result MDL has been one of the hot stocks in recent times.

Although capex costs at the project are expected to be significant, MDL’s cash balance and JV with Eramet puts it in a good position to meet funding requirements.

Magnificent Mineral Sands

The mineral sands industry is expected to boom in coming years due to a widening supply deficit.

Global zircon supply is forecast to shrink over the next decade, which will coincide with soaring demand from high growth countries such as China.

Zircon demand is driven predominantly by its use in ceramics. With China modernising its economy, the demand for ceramics, such as tiles, is expected to surge.

This is likely to drive significant zircon price growth, which will benefit MDL as it begins production in 2013.

The supply deficit will take time to narrow given the more than seven years required to bring projects from exploration to commissioning.

Titanium is anticipated to follow a similar path to zircon, in that demand is likely to be fuelled from its use in paint, plastics and paper – key ingredients for China’s growing economy.

Tizir is born

On 28 July the group formed a 50/50 JV with French-based miner, Eramet, known as Tizir Limited.

Under the JV, Mineral Deposits will contribute its 90% interest in Grande Cote (Senegal’s government owns the other 10%), with Eramet contributing its Tyssedal titanium and iron plant in Norway, along with $30 million in cash.

The JV was crucial for MDL as it secures off-take for the majority of Grande Cote’s ilmenite. The ilmenite will be used in the production of titanium feedstock at the Tyssedal plant.

The agreement also secures additional titanium supply for Tyssedal, giving it the capacity to meet growing demand from pigment producers.

Therefore it appears the JV is a win/win for both companies.

Grande Cote is grand

The Grande Cote project is strategically placed in Senegal, located not too far from the Dakar coast. This reduces the time it will take to transport the minerals from the mine separation plant to the port for shipment.

The lack of significant vegetation and overburden also allows for an efficient processing of the mined ore.

Thus when production begins MDL will be operating towards the lower end of its cost curve, giving it a significant competitive advantage.

Grande Cote has the potential to be a Tier 1 asset, with an operating mine life of 25+ years, and expected annual production of 85,000 tonnes of zircon and 575,000 tonnes of ilmenite.

These output estimates will amount to approximately 7% of global supply, putting MDL on track to become one of the world’s bigger producers.

Cash is king

MDL is in sound financial shape, having secured US$136.2 million in a capital raising in June. The raising brought the group’s cash balance at the end of June to US$173.3 million.

Moreover, the company has no external borrowings.

Although Grande Cote requires approximately US$516 million in capex requirements, Mineral Deposits’ array of financing options, including the contribution from Eramet, will help ensure sufficient funding for the project.

Outlook

Mineral sands producers stand to reap significant benefits from China’s voracious demand for resources.

The supply deficit is expected to linger for a while yet, putting MDL in line to achieve major price increases at the same time it begins production.

Grande Cote appears to be a long-life, low-cost asset for MDL, thus giving it a competitive advantage in the mineral sands industry.

Importantly, the company is in sound shape with cash in the bank, no external debt, and a JV with Eramet that has secured off-take for its ilmenite.

Therefore the future appears bright for MDL, and it will be one of the stocks to watch in coming months.

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Mesoblast (ASX:MSB) is a world leader in the development, manufacture and commercialisation of biologic products in the broad field of regenerative medicine.

MSB has the worldwide exclusive rights to a series of patents and technologies developed over more than 10 years relating to the identification, extraction, culture and uses of adult Mesenchymal Precursor Cells (MPCs).

MSB’s stock has been one of the hot stocks since the start of the year on market excitement over the therapeutic power of MPCs.

A unique business

The commercialisation of MPCs allows adult stem cells to be extracted from the bone marrow of donors, grown into therapeutic quantities and administered to non-related patients.

MSB’s lead products will target cardiovascular conditions, diabetes, inflammatory conditions of lungs and joints, eye diseases, bone marrow cancers, bone fractures, cartilage degeneration and musculoskeletal conditions.

The company aims to generate a series of high margin, off-the-shelf adult stem cell products that are obtained from a single donor, commercially expanded and frozen, and subsequently used in potentially thousands of unrelated, or allogeneic, recipients at the time and place of need.

Bone marrow approval

Mesoblast recently received approval from US authorities to begin an advanced trial of a treatment that could boost the number of bone marrow transplants for patients who cannot find a matched donor.

Following the approval, MSB has commenced the Phase III trial for bone marrow regeneration in patients with blood cancers.

MSB aims to produce a product that can be used in bone marrow transplants where a perfectly matched donor cannot be found.

Hearty hopes

Another key driver for MSB will be the results of its Phase II congestive heart failure trials in November.

Clinical results have thus far been encouraging, and if the full results turn out to be positive, MSB is likely to request a Phase III trial from the US Food and Drug Administration (FDA).

We believe a positive Phase II result will help deliver a significant jolt to MSB’s share price, as it moves the group closer to receiving regulatory approval to market its product.

Moreover, given the large number of reported heart problems in the US, Phase III approval can open up a huge market for MSB.

The Lonza and short of it

On 27 September, MSB announced an alliance with Swiss-based Lonza Group for the clinical and commercial production of its MPC product.

Under the deal, Lonza will supply MSB’s product requirements, in return for MSB having exclusive access to Lonza’s Cell Therapy facilities in Singapore.

The alliance is a critical plank in Mewsoblast’s strategy to market its product, as it creates certainty in the ability of the group to manufacture its MPCs.

Another interesting aspect of the alliance was Lonza using its intellectual property to help lower MSB’s manufacturing costs.

This would be in keeping with MSB’s aims to generate higher margin products, and would also provide it with the flexibility to develop new technologies.

Looking ahead

Whilst market excitement grows surrounding the therapeutic potential of MPCs, MSB has turned heads with its unique product innovation.

With regulatory approvals continuing to roll in and a global manufacturing alliance locked in, MSB is in a good position to bring its MPC technology to market.

The bone marrow product could be the company’s first revenue generating biologic therapy in the US and Europe.

MSB has huge revenue potential and exclusive rights to a series of patents and technologies relating to MPCs.

Furthermore, a successful outcome for MSB’s Phase II congestive heart failure trial could make MSB one of the stocks to watch in coming weeks.

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Tabcorp (ASX:TAH) is a diversified entertainment group specialising in gambling and a variety of other entertainment products.

TAH has reported a 2.7% on-year rise in 1Q12 revenue to $759.4 million.

All of TAH’s divisions recorded growth in the quarter, reflecting the group’s well executed investments in those businesses.

TAH has been one of the shares to buy today on the back of the update.

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Coca-Cola Amatil (ASX:CCL) is an Australasian bottler for US-based The Coca Cola Company.

CCL manufactures, sells and distributes Coca-Cola products, including carbonated soft drinks, mineral waters and other non-alcoholic beverages, plus packaged fruit.

It is also considered among the market’s blue chip stocks.

Over the years, the company has successfully reduced its percentage of sugary carbonated beverages and increased its percentage of non-carbonated beverages, alcoholic beverages and food, in order to diversify its earnings stream.

It has also ventured into the manufacture and distribution of premium beer brands and the premium spirit portfolio of global distributor Maxxium through Pacific Beverages (a JV entity between CCA and SABMiller).

The company delivered a solid first half result last month helped by its strategic product positioning in key markets.

Market ace

CCL stands to benefit from SABMiller’s takeover of Foster’s Group. The move is likely to result in the Pacific Beverages joint venture being dissolved.

CCL management estimates it could book a profit of $200-$300 million on the $305-$380 million sale of Pacific Beverages to SABMiller.

From an EPS perspective, this would be equivalent to a 2%-3% accretion.

CCL will also have the opportunity to acquire some of Foster’s assets at multiples that would be EPS accretive to CCL.

As an overall entity, CCL has grown from strength to strength in recent years. The company’s diversification strategy has been key to this growth, which has included the addition of alcoholic beverages.

Drink up to earnings

CCL last month reported a 27.8% decline in 1H11 net profit to $153.6 million.  An interim dividend of 22 cents was declared.

The result was impacted by an $80.5 million charge related to the restructuring of its SPCA Ardmona division.

Underlying profit rose 5.5% to $234.1 million, with revenue growing 3.3% on-year despite the impact of the recent flooding and consumer caution.

At an AGM in June, CCL had said it was looking to target around 5% growth in underlying profit for the 1H11.

The group has been hurt by the strong Aussie dollar, natural disasters and higher resin prices.

Before currency translation effects, first half profit was expected to be around 6% – 7% higher than the prior year.

CCL was expecting to generate stronger earnings in the second half, but said trading conditions remained uncertain as consumers contended with higher living costs.

Taking into consideration the adverse factors CCL faced during the period, we feel the company delivered a solid result.

Looking ahead

CCL will continue to focus on capitalising on its growing alcoholic beverage and non-carbonated soft drinks market, which are growing owing to modern lifestyle trends.

The company has strong brand awareness, and very stable and highly predictable cashflow compared to its peers.

Coca-Cola Amatil is a defensive company which is protected against inflation as it can pass costs on to customers, who are always willing to spend money on CCL’s famous brands.

With the potential for significant earnings upside from the Foster’s takeover, we feel CCL is in a lucrative position.

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Perseus Mining (ASX:PRU) is a gold explorer, focused on under-explored gold belts in West Africa.

The group’s Central Ashanti Gold Project has reserves of 3.3 million ounces (Moz) of gold, plus 1.5 Moz Measured and Indicated gold resources and 1.9 Moz Inferred gold resources.

A further 570,000 ounces of indicated gold resources and 1.21 Moz inferred gold resources are held on PRU’s West African projects, Grumesa and Tengrela.

The two projects (Central Ashanti Gold and Tengrela) aim to put out 670,000 oz per year once at full production, which would make PRU Australia’s second-largest listed miner by production after Newcrest Mining.

Further mineral resource and reserves upgrades are planned for later this year.

The miner recently completed its first gold pour during commissioning at the Central Ashanti Gold Project.

Though PRU is currently an explorer, the company is on track to become a producer.

PRU’s aim is to become a 400,000 ounce per annum gold producer from 2013, and the company is on target to achieve this following its consistent over-delivery on targets.

PRU is looking promising owing to its exposure to the under-explored gold belts in West Africa and on strength in gold prices.

Operational update

Following a recent updated economic analysis incorporating a revised life of mine plan (LOMP), PRU has planned throughput optimisation upgrades over the next 18 months.

Under the upgrade, average process throughput will increase from 5.5 Mtpa to 7.9 Mtpa.

Average annual gold production is set to increase by 38% to approximately 265,000oz.

Cash costs will drop to US$551/oz with a base case gold price of US$1,150/oz.

As a result, PRU’s EBITDA over the life of the project has increased by 127% to $1.56 billion.

The early start up of the Central Ashanti Gold Project could push the gold miner’s EBITDA up to US$300 million a year in 2013 and 2014.

Of course, the company will continue to lose money until it starts producing, although it has ample funding facilities to pursue its exploration activities and mine development plans.

Looking ahead

Perseus Mining is turning market heads over its consistent over-delivery on targets. The group is also in good financial stead, with approximately US$100 million cash.

Though PRU’s recent financial results are nothing to write home about, this is typical of a company in its emerging stages.

PRU is looking promising owing to its exposure to the under-explored gold belts in West Africa and on strength in gold prices.

The group will continue to expand its gold resources through rapid exploration of existing tenements and the acquisition of prospective new projects, while developing the Central Ashanti Gold Project.

Gold has gained significant ground this year, consistently reaching fresh record highs.

However, the precious metal saw a pullback late last week but is still in a good position to register further gains.

The metal printed highs of around US$1900 early last week and continues to hold its ground well above US$1800.

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Troy Resources NL (ASX:TRY) is a junior gold producer with operations at Sandstone in Western Australia and the Andorinhas Gold mine in Para State, Brazil.

The company, which is dual-listed on the Australian and Toronto Stock Exchanges, also boasts the Casposo gold-silver project being developed in Argentina.

TRY has forged a proven record of fast-track mine development., low cost operations, strategic acquisitions and exploration discoveries.

The Casposo mine and processing plant development recently recorded its first gold pour.

TRY has stepped into gold production at the right time, with gold prices repeatedly hitting record highs and driving up prospective gold miners such as TRY.

Operations booming

TRY is involved in gold production through its operations at Sandstone and Andorinhas, with the latter a focus of TRY’s attention over the last year.

Last year TRY acquired the Casposo gold/silver deposit in Argentina, and on 29 September confirmed the commencement of ore processing at the project.

The project has already poured its first gold.

Casposo will support the doubling of TRY’s production and rejoining the plus 100,000oz per annum producer club.

Troy Resources has an aggressive exploration program aimed at increasing Reserves and Resources and nearly all of this exploration expenditure is expensed.

The miner recently announced a high grade drill intercept outside the current Reserves and Resources in the Kamila South East Extension.

TRY is confident it will add to the existing Reserves and extend the mine life past the current planned 6 years.

Quarterly update

For the June quarter, TRY saw a 68% increase in group gold production to 26,382oz at a cash cost of US$496/oz.

For the year, gold production was up 17% to 71,614oz at a cash cost of US$554/oz.

The miner enjoyed record quarterly and annual production at Andorinhas. TRY has its exploration budget at Caposo to $15 million.

Strong cashflow generation saw net debt decrease to just $5.5 million at the end of the quarter.

Looking ahead

With inflation concerns and a weaker US dollar continuing to propel gold prices higher, we feel TRY has plenty of upside potential.

Bullion prices have rocketed this year, and the domestic gold miners have been some of the hot stocks in recent months.

Gold price has repeatedly hit record highs of US$1815.5 per oz last week with forecasts it will keep rising.

Fears over rising debt levels across the US and Europe provide strong support for gold prices.

TRY is committed to pursuing growth through exploration, acquisition of new projects and/or corporate merger activity.

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McMillan Shakespeare (ASX:MMS) is the leading provider of independent salary packaging services in Australia.

The group’s primary services include: salary packaging, remuneration policy design, motor vehicle lease management, information retrieval, procurement of motor vehicles and finance and administration of fuel card and service maintenance programs.

MMS occupies a unique market position: it is the only integrated provider of salary packaging and “company car” solutions, and its services are seeing a lot of demand.

Recent acquisitions have helped MMS win new lucrative business contracts.

The benefits are reflected in its strong business momentum which saw MMS report solid first half earnings.

The salary packaging scene

Salary packaging is a lucrative business. Australia’s taxation system allows tax concessions for certain employee benefits and for certain industry sectors, which makes salary packaging attractive.

Eligible employees increase their disposable income by using pre-tax salary to pay for goods or services. They also use these benefits to attract and retain staff in a tight employment market.

Existing payroll systems do not cope well with salary packaging, and this is where MMS comes in.

McMillian Shakespeare administers budgets; deducts pretax salary; makes payments to service providers on behalf of an employee; and accurately reports transactions for tax purposes.

A high transaction load, a complex business process and the tax implications leads many employers to outsource this task to MMS.

Likewise, fleet management is a complex and capital intensive task. Many corporations choose to outsource management and/or lease their fleet using MMS.

First Half results

MMS saw its NPAT and EPS for the first half rise 83% on year. NPAT for the period came in at $20.5 million and EPS at 30.3 cents per share.

An interim dividend of 16 cents per share was declared, up from 10 cents a share on year.

Its Asset Management business recorded a NPAT of $6.6 million.

First half performance in its asset management segment exceeded expectations.

Asset Management capability has opened up significant new opportunities in the private sector for Group Remuneration Services. This has been a largely untapped market for MMS.

The company has been focusing on integration; maintaining momentum in its core business; and disciplined prioritisation of tasks and opportunities.

New business wins and cross sells continue to build momentum.

Looking ahead

MMS runs a unique business that is able to grow even during economic downturns, with the market running at 3-8% per annum.

A combination of the Group Remuneration Services business with the Asset Management business is helping to create a different and more capable organisation.

The company has been able to capitalise on demand for salary packaging and fleet management services, which involve a complex business process as well as tax implications, leading many employers to outsource this task to MMS.

Continued, disciplined development of its core business combined with increasing participation rates within its existing customer portfolio will help MMS going forward.

The company’s FY11 earnings may expectations given the typical seasonal bias favouring the second half of the year.

MMS has been one of the shares to buy since early 2009 and future growth will be sustained by the group’s alliance with big-name (including government) clients and new contracts.

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Telstra (ASX:TLS) is a provider of telecommunications and information products and services, arguably best known as Australia’s dominant telco company.

Despite its troubles in recent years, TLS is a staple holding among retail investors and is still widely considered a blue chip stock.

Its principal activities are the provision of telephone lines; national local, and long distance, and international telephone calls; mobile telecommunications; data; internet and on-line; wholesale; telephone directories; and pay TV.

Today, TLS reported a 16.8% decline in FY11 net profit to $3.23 billion, although the result topped analyst expectations of a $3.09 billion profit.

Total revenue grew 0.7% on-year, whilst EBITDA fell 12.4%, matching TLS’ previous guidance.  A final dividend of 14 cents was declared, bringing the full year dividend to 28 cents.

TLS forecast a similar full year dividend in FY12, but this time was expecting low single digit growth in revenue and EBITDA.

The group based its forecast on the recent improvement in customer satisfaction as well as initiatives to simplify the company.

TLS has been one of the shares to buy today following the release of its results.

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Perilya (ASX:PEM) is a mining and exploration company and is among the top 20 global producers for zinc and the top 10 for lead production.

PEM is investing substantially in the development of its three major projects located in the Broken Hill (New South Wales), Mt Isa (Queensland) and Flinders (South Australia) regions as well as exploration in the surrounding tenements.

The group is 52%-owned by Shenzhen Zhongjin Lingnan Nonfemet, China’s third largest zinc producer.

The company has rapidly grown from a junior explorer to a company with two operating mines, substantial cash reserves, and investments in other resource companies.

It has also been one of the hot stocks since late February, having surged more than 40% from that month’s lows.

PEM has a wide exposure to base metals and gold. Whilst most commodities have gained strength of late, this diversification helps PEM flourish during bearish economic times (which drives up gold demand) and during times of economic strength (which drives up copper prices).

Regional operator

PEM is the operator of the Broken Hill zinc, lead, silver mine in NSW and the Flinders zinc silicate project in South Australia.

The company’s Broken Hill mine went through a resizing in 2008, resulting in a significant improvement in productivity and cashflows and an extension to the mine’s life by at least 10 years.

Perilya has an active exploration and development program covering Broken Hill and Flinders (in South Australia, in the vicinity of its Beltana zinc silicate project).

At present, PEM is reviewing options for the development of the Mount Oxide Copper and Cobalt Project in the Mount Isa region in Queensland.

PEM recently announced a new mineral resource estimate for the Moblan Lithium Project in Quebec, Canada, which has more than doubled the earlier mineral resource for the project.

Diversified resources

PEM, especially now with its acquisition of Globestar, is exposed to a very wide range of metals, including lead, zinc, lithium, nickel, silver, copper and gold.

Copper price has been steadily strengthening on signs of a global economic recovery, whilst nickel prices on the London Metals Exchange averaged US$9.49 a pound this year against US$5.67 last year.

Copper prices should rise as mine production fails to keep up with rising global demand, creating supply-and-demand issues.

Gold has gained significantly this year, reaching an all-time high of $1,624 an ounce last night, as the US debt crisis remains unresolved.

The Globestar acquisition further diversifies PEM’s metals portfolio. The Moblan Lithium Project in Quebec is looking to benefit from forecast future demand for lithium in electronic products, particularly in electronic car batteries.

Demand from China is set to drive the boom. Lithium usage in electronics has already grown 25%-30% from 1999-2008.

Quarterly report

For the June quarter, PEM saw net cash costs at its Broken Hill operation come in at below market guidance.

Production levels for the quarter saw combined metal production of 30,000 tonnes of contained zinc and lead coming in line with guidance.

PEM reiterated annualised production guidance of 110,000-120,000 tonnes of combined zinc and lead.

At June 2011, PEM held cash, deposits and investments totalling $117.9 million.

Looking ahead

PEM’s diversification and growth strategy has reduced its reliance on the Broken Hill Operations as its sole source of revenue and increased its ability to withstand external shocks.

The miner does not feel the proposed carbon tax will have any material impact on its Australian operations.

PEM is a low-cost mining and exploration company which is invested heavily in Australia but also has overseas exposure, most recently via its acquisition of GlobeStar.

GlobeStar’s Canadian lithium operation adds to PEM’s already-impressive metals portfolio.

The company has rapidly grown from a junior explorer to a company with two operating mines, substantial cash reserves, and investments in other resource companies.

PEM is one of the stocks to watch.

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