Woodside Petroleum Limited

WPL Details

Signing of Sale and Purchase Agreement: Woodside Petroleum Limited (ASX: WPL) is engaged in the exploration, evaluation, development, production, and marketing of hydrocarbon. The market capitalisation of the company stood at $17.32 Bn as on 7^th October 2020. Recently, the company notified that Woodside Energy (Senegal) B.V. has inked a binding sale and purchase agreement for the acquisition of the participating interest of Capricorn Senegal Limited in the Rufisque Offshore, Sangomar Offshore and Sangomar Deep Offshore (RSSD) joint venture. However, the acquisition is subject to the approval from the Government of Senegal and Cairn Energy PLC shareholder. The acquisition is likely to be completed by Q4 2020.

H1FY20 Results Highlights: For the half-year ended 30^th June 2020, the company reported record production of 50.1 MMboe and underlying net profit after tax of US$303 million, despite the dynamic market conditions and the global impacts of the COVID-19 pandemic. For 1HFY20, the company reported operating revenue of US$1,907 million and an EBITDA loss of US$4,295 million. WPL recorded a net loss after tax of US$4,067 million, mainly due to the impairment losses and onerous contract provision.

During the half-year, the company strategically managed its debt portfolio by minimising near-term maturities and maintaining a low cost of debt. In addition, the company finished a $600 million syndicated facility with a term of seven years. The company declared an interim dividend of US 26 cents, reflecting a payout ratio of 80% of underlying net profit after tax.

Production Breakout (Source: Company Reports)

Guidance: For the full-year 2020, the company anticipates total production in the range of 97mmboe – 103mmboe. The company expects its investment expenditure in FY20 to be in the ambit of US$1,500 million- US$1,700 million. The company has scheduled to release its Q3 FY20 operating results on 22^nd October 2020.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: During 1H FY20, the company generated a free cash flow of $264 million and ended the period with a liquidity of US$7,552 million. The stock of WPL has corrected 4.61% and 16.59% in the past one month and three months, respectively. As a result, the stock is inclined towards its 52-week low of $14.930, offering decent opportunities for accumulation. On a technical analysis front, the stock price of WPL has a support level of ~$16.764 and a resistance level of ~$20.845. We have valued the stock using the P/CF multiple based illustrative relative valuation method. For the purpose, we have taken peers such as Santos Ltd (ASX: STO), Oil Search Ltd (ASX: OSH), Beach Energy Ltd (ASX: BPT), to name few, and arrived at a target price of low double-digit upside (in percentage terms). Thus, considering the record production in 1H FY20, decent liquidity, guidance, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $18.370 per share, up by 2.056% on 7^th October 2020.

WPL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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