Woodside Petroleum Limited
WPL Details
Q4FY21 Updates: Woodside Petroleum Limited (ASX: WPL) with the focus on LPG (Liquified Natural Gas), WPL is involved in hydrocarbon business. It works through three segments: production, exploration, development, and other segments. The company released its fourth quarter report ending 31st December 2021, on 20th January 2022.
- Quarterly Revenues: The company recorded ~$2,852 million as its highest quarter sales on record, an ~86% increase in 4QFY21 from 3QFY21. It was supported by ~22% increase in sales volume (31.8 MMboe) and ~53% hike in average realised price, coming as ~$90 per barrel of oil equivalent from last quarter.
- BHP Group’s Joining Hands: To scale-up, introduce diversity and resilience, WPL signed a binding share sale (merger) agreement with BHP Group’s oil and gas portfolio, which is yet to be completed in second quarter of 2022.
- Other Deals: WPL has completed the sale of its 49% non-operating participating interest in the Pluto Train 2 and Scarborough projects with GIP – Global Infrastructure Partners.
Revenue Highlights (Source: Analysis by Kalkine Group)
Key Risks:
- Fluctuations in Commodities Prices: The type of business WPL works in, it is highly dependent on the commodity’s prices, which makes it prone to the risks and vulnerable to the related uncertainties.
- Omicron and COVID-19 Impact: Lockdowns and domestic and international restrictions might affect the labour market and employees and further impacting the business operations.
Outlook:
- WPL announced ~$5 billion investment target to encourage new energy products and lower-carbon services.
- The merger with BHP Group is all set to be completed in second quarter of 2022.
- The pre-lay survey related to Sangomar field began in January 2022, and the subsea installation campaign is yet to be started in 2QFY22, where the first oil target is set for FY23.
- Its investment expenditure is expected to be ~$3,800-~$4,200 million (excluding BHP’s merger) for FY22.
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of WPL is trading higher than the average of its 52-week low and high levels of $19.15-$26.27. The stock gave a positive return of ~11.79% and ~13.37% in the past one month and six months, respectively. The stock has been valued using an EV/EBITDA multiple-based illustrative relative valuation and arrived at a target price with a correction of low single-digit (in % terms). The company can trade at a slight discount its peers, considering its lower ROE than industry median and currency fluctuations. For the purpose of valuation, peers such as Santos Ltd (ASX: STO), Beach Energy Ltd (ASX: BPT), Viva Energy Group Ltd (ASX: VEA), and others have been considered. Considering the expected downside in valuation, lower ROE, expected headwinds related to COVID-19 Omicron, current trading level, and key risks associated with the business, we recommend a ‘Sell’ rating and book profits on the stock at the current market price of $25.04, 01:50 PM (GMT+10), Sydney, Eastern Australia, as on 28 January 2022.
WPL Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.
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