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Valuation of $33.72
Edited 4 months ago

I have been a big fan of WDS since I started investing. Lately the price has been smashed and I thought I’d ask an AI to write me an analysis based on the current company. Below is the Comprehensive Analysis Report, and underneath that is a fair value that it has concluded based on current values as of today, 20th August 2024.


Woodside Energy Group (ASX: WDS) - Comprehensive Analysis as of August 2024


Woodside Energy Group (WDS), one of Australia’s leading energy companies, continues to play a pivotal role in the global energy market, particularly in liquefied natural gas (LNG) and oil production. As of August 2024, the company's stock is trading at approximately AUD 26.08 per share, reflecting a recent decline from its 52-week high of AUD 38.89 [oai_citation:1,UBS Sticks to Their Hold Rating for Woodside Energy Group (WDS) | Markets Insider](https://markets.businessinsider.com/news/stocks/ubs-sticks-to-their-hold-rating-for-woodside-energy-group-wds-1033698751).


Recent Acquisitions and Projects

Woodside has been aggressively expanding its portfolio, particularly in clean energy. Notably, it acquired a clean ammonia project in Texas for USD 2.35 billion in July 2024, marking a significant shift towards low-carbon solutions. This acquisition is part of Woodside's strategy to diversify its operations and secure a foothold in the growing market for clean energy solutions [oai_citation:2,UBS Sticks to Their Hold Rating for Woodside Energy Group (WDS) | Markets Insider](https://markets.businessinsider.com/news/stocks/ubs-sticks-to-their-hold-rating-for-woodside-energy-group-wds-1033698751).


Additionally, Woodside is progressing with its Scarborough gas project off Western Australia, a major LNG project expected to significantly boost production. The project is slated to start production by 2026, reinforcing Woodside's position as a leading LNG producer [oai_citation:3,Woodside Energy Group Ltd (ASX:WDS) Share Price - Market Index](https://www.marketindex.com.au/asx/wds).


Commodity Prices and Outlook

As of August 2024, Brent crude oil is trading around USD 88 per barrel, while natural gas prices are hovering near USD 2.70 per MMBtu. The future outlook for these commodities remains mixed. While oil prices could see upward pressure due to geopolitical tensions and supply cuts from OPEC+, the outlook for natural gas is more subdued due to oversupply and weak demand in key markets like Europe and Asia [oai_citation:4,UBS Sticks to Their Hold Rating for Woodside Energy Group (WDS) | Markets Insider](https://markets.businessinsider.com/news/stocks/ubs-sticks-to-their-hold-rating-for-woodside-energy-group-wds-1033698751) [oai_citation:5,Woodside Energy Group Ltd (ASX:WDS) Share Price - Market Index](https://www.marketindex.com.au/asx/wds).


For Woodside, this scenario implies a challenging environment for its oil-related revenues but a more stable outlook for LNG, especially as demand from Asia is expected to remain robust in the coming years. However, the volatility in commodity prices could impact Woodside’s profitability and cash flows, especially as it embarks on capital-intensive projects.


Fair Value and Analyst Ratings

Analysts currently estimate Woodside’s fair value around AUD 31 per share, implying a potential upside of approximately 19% from current levels. Despite this, the stock has been under pressure, and many analysts maintain a "Hold" rating, citing concerns over the execution risks associated with its major projects and the uncertain commodity price environment [oai_citation:6,UBS Sticks to Their Hold Rating for Woodside Energy Group (WDS) | Markets Insider](https://markets.businessinsider.com/news/stocks/ubs-sticks-to-their-hold-rating-for-woodside-energy-group-wds-1033698751).


Dividend Outlook

Woodside has been a reliable dividend payer, distributing a dividend yield of around 6-7% over the past two years. For the full year of 2024, estimates suggest a dividend payout of approximately AUD 1.80 per share, reflecting a slight increase from the previous year, assuming stable oil and gas prices and no significant disruptions to its operations. The company's current balance sheet shows a healthy cash position, supporting its ability to maintain or even slightly increase its dividend payout, despite heavy capital expenditures on new projects [oai_citation:7,Woodside Energy Group Ltd (ASX:WDS) Share Price - Market Index](https://www.marketindex.com.au/asx/wds).


Conclusion

Woodside Energy remains a solid player in the global energy sector, with strategic expansions into clean energy and a robust LNG portfolio. However, investors should be mindful of the risks associated with volatile commodity prices and the execution of large-scale projects. The stock currently offers a decent dividend yield, making it attractive for income-focused investors, but its near-term capital appreciation potential may be limited.


Fair Calculation


To calculate a fair value for Woodside Energy (WDS), we can use several commonly accepted valuation methods: the Dividend Discount Model (DDM), the Price/Earnings (P/E) ratio analysis, and the Discounted Cash Flow (DCF) model. Below, I'll go through the calculations for each method and then average the results.


1. Dividend Discount Model (DDM)

The DDM estimates the fair value of a stock based on its future dividend payments, which are discounted back to their present value.


Formula:

P0 = D0 x (1 + g)/(r - g)


Where:

- P0 = Fair value of the stock

- D0 = Current dividend per share (AUD 1.80)

- g = Dividend growth rate (let's assume 3%)

- r = Required rate of return (let's assume 8%)


Calculation:

P0 = 1.80 x (1 + 0.03)/ 0.08 - 0.03)

P0 = 1.854/0.05

P0 = AUD 37.08


2. Price/Earnings (P/E) Ratio Analysis

This method involves multiplying the company's earnings per share (EPS) by the average P/E ratio for the industry or company.


Assumptions:

- Current EPS: AUD 2.00

- Industry average P/E: 15


Formula:

P0 = EPS x P/E


Calculation:

P0 = 2.00 x 15 = AUD 30.00


3. Discounted Cash Flow (DCF) Analysis

The DCF model values a company by estimating its future cash flows and discounting them back to their present value.


Assumptions:

- Free Cash Flow (FCF) for the next year: AUD 2.5 billion

- Growth rate of FCF: 2% (conservative estimate)

- Discount rate: 8%

- Number of shares outstanding: 960 million


Formula:

P0 = sum (FCFt)/(1 + r)^t + TV/(1 + r)^n


Where TV is the terminal value:


TV = FCFn+1/(r - g)


Calculation:

Let's simplify by calculating for a 10-year period with a terminal value at the end:


P0 = 2.5/(1.08)^1 + 2.55/(1.08)^2 + … TV/(1.08)^10


Terminal Value (TV):

TV = 2.5 x (1 + 0.02)/(0.08 - 0.02) = AUD 42.50 billion


Present value of TV:

PVTV = 42.50/(1.08)^10 = AUD 19.77 billion


Sum of PV of FCFs (approximately over 10 years) + PV of TV:

P0 = approx AUD 32.08 per share


Average Fair Value Calculation


Now, we take the average of the three methods:


Average Fair Value = {37.08 + 30.00 + 32.08}/3 = AUD 33.72


Based on these calculations, the fair value of Woodside Energy (WDS) is approximately AUD 33.72 per share. This suggests that the stock, trading at AUD 26.08, might be undervalued, providing a potential buying opportunity. However, it's essential to consider market conditions, company-specific risks, and the broader economic environment before making investment decisions.


Do take these words with a grain of salt, I have experienced products generated by AI to be incorrect in the past. In saying that, I believe this stock is quite undervalued and I give it a Strong Buy rating. Not only because of the math, but because of where the world is heading with its ever growing demand for energy.

Disc: Held IRL (largest holding) and SM.

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#Media
stale
Last edited 3 years ago

Hi @Remorhaz I watched the ABC report also. I think the so called ‘gas crisis’ is the result of the perfect storm of events that have driven gas demand, and consequently sky high gas prices. Here are some of the contributors to the perfect storm:

  • Coal is the dominant source of Australia’s electricity generation, accounting for about two-thirds.
  • The role of coal in electricity generation has been falling amid a wave of new zero-emission generation and environmental advocacy.
  • Several ageing coal fired power stations have been shut down for maintenance leaving 25% of the country’s capacity offline
  • the Victorian state government put a moratorium on gas exploration and production, and now we don’t have enough gas. 
  • the Australian Energy Market Operator has warned of “potential ongoing implications for reliability” in the National Electricity Market this winter because of the recent “challenges” with the availability of fuel.
  • Australian wholesale electricity prices have surged because of the lack of investment in generation.
  • the Ukraine war has resulted in oil and gas shortages and price hikes
  • A sudden cold snap in eastern Australia spiking the demand for power
  • we find out the Snowy 2 hydro battery project is 19 months behind schedule and will not level out renewable energy cycles until 2027.

I think the perfect storm will pass in months, not years. When it passes, I think the long-term low carbon emission theme will return to haunt Woodside and other fossil fuel producers.

While the shortage of fossil fuels has some time to run, I’ve taken this as an opportunity to offload Woodside IRL at 12 month highs. I think back to March 2020…nobody wanted Woodside for just over $15.

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#Media
stale
Added 3 years ago

Fossil fuels, carbon credits and transitioning to clean energy ABC 7:30 Carbon Dilemma

A recent short (seven and a half minutes long) ABC 7:30 piece on Woodside's Scarborough Gas Project. It questions whether natural gas is truly key in the green transition and whether Woodside's latest proposal will blow past the global carbon budget

https://www.abc.net.au/7.30/scientists-warn-new-natural-gas-projects-will-make/13922854

Disc: Held in RL


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#ASX Announcements
stale
Last edited 3 years ago

Q2 2021 Report
Performance highlights:

  • Achieved sales revenue of $1,285 million, up 15% from Q1 2021
  • Delivered production of 22.7 MMboe, down 4% from Q1 2021
  • Delivered sales volume of 28.1 MMboe, up 9% from Q1 2021.

Executing a clear plan:

  • Launched sell-down processes for Scarborough and Pluto Train 2, timed to align with the targeted final investment decision (FID) in H2 2021.
  • Commenced the drilling campaign for Sangomar Field Development Phase 1 in July 2021
  • Completed acquisition of FAR’s interest in the Rufisque Offshore, Sangomar Offshore and Sangomar Deep Offshore (RSSD) joint venture in July 2021 and launched a sell-down process
  • Executed three sale and purchase agreements (SPA) for the supply of domestic LNG from the Pluto LNG truck loading facility
  • Signed a heads of agreement (HOA) with IHI Corporation and Marubeni Corporation to investigate the production and export of green ammonia from renewable hydroelectric power in Tasmania.
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Valuation of $29.77
stale
Added 4 years ago
24-Aug-2020: 12-month PT: $27 25-Feb-2021: Yeah, that got hit last month (Jan, 2021). New 12-month PT is $29.77. I am not currently holding WPL. I prefer BPT (also not holding) and SXY (holding) and COE (holding) at this point.
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#ASX Announcement 21/1/21
stale
Added 4 years ago

FOURTH QUARTER REPORT FOR PERIOD ENDED 31 DECEMBER 2020

Performance highlights 

• Delivered production of 24.9 MMboe, down 2% from Q3 2020, contributing to record annual production of 100.3 MMboe.

• Delivered sales revenue of $920 million, up 32% from Q3 2020.

• Delivered sales volume of 29.1 MMboe, up 9% from Q3 2020.

• Installed the Pluto water handling module on the Pluto offshore platform.

View Attachment

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#ASX Announcement 18/1/21
stale
Added 4 years ago

WOODSIDE EXPANDS LONG-TERM LNG SUPPLY AGREEMENT

Woodside Energy Trading Singapore Pte Ltd (Woodside) and Uniper Global Commodities SE (Uniper) have agreed to amend the binding long-term sale and purchase agreement (SPA) announced in December 2019 to increase the supply of LNG from Woodside’s global portfolio to Uniper.

The quantity of Woodside LNG to be supplied under the amended SPA has doubled. Initial supply commencing in 2021 is now for a volume of up to 1 million tonnes per annum (Mtpa), increasing to approximately 2 Mtpa from 2026.

The majority of LNG supply from 2025 is conditional upon a final investment decision on the development of the Scarborough gas resource offshore Western Australia. The 13-year term of the SPA is unchanged.

View Attachment

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#Analyst/Fundie Views
stale
Added 4 years ago
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#Results
stale
Added 4 years ago

14-Aug-2020:  Half-Year 2020 Results Briefing Teleconference Transcript

That link will take you to a full transcript of the Teleconference that Woodside held yesterday after announcing their half year results.  I posted a straw here yesterday with links to their results announcements.

[I hold WPL shares]

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#Results
stale
Added 4 years ago

13-Aug-2020:  Half-Year Report 2020   and   Half-Year 2020 Results and Briefing Pack

[I hold WPL shares]

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#Quarterly Reports
stale
Added 4 years ago

16-7-2020:  4:18pm:  Q2 2020 Briefing Transcript and Additional Information

Also:  15-7-2020:  8:30am:  Second Quarter 2020 Report

[I hold WPL shares]  Gas company, largest market cap Energy play on the ASX, but entirely leveraged to Natural Gas rather than oil.  Not ex-growth yet.  They can move at glacial pace, but they get things done - in their own time.  Very measured.  Great management.  Good focus on shareholder returns.  Gas Production revenue underpinned by multi-year long-term contracts (recurring revenue).  Pays reasonable dividends.  Not as leveraged as a Santos or an Oilsearch, so less bang-for-your-buck on an oil price recovery (which drags gas producing companies up with it), but less downside risk, and still plenty of upside from here when energy companies are back in vogue once more.  Good company to buy when their SP is low, which it still is.

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