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17 March 2021 | IMP

BUY | Woodside Petroleum Limited


Tier-one resources company with strong growth potential

Woodside Petroleum Limited (ASX:WPL)

Woodside Petroleum Limited (WPL) is Australia’s largest stand-alone oil and gas producer with a host of low-cost world-class assets predominately located in the safe havens of Australia.

Woodside leveraged their existing infrastructure for low-risk opportunities, with investments ready in multiple projects to ensure the next phase of growth.

The company suffered a very large share price decline during the 2020 COVID-19 pandemic onset, however, unlike the oil price (which now trades some 15% above their February 2020 pre-COVID-19 levels), Woodside’s share price has lagged and remains some 25% below their pre-COVID-19 levels. This move comes despite a strong rebound in demand, so we feel the market undervalues the company’s current production and is insufficiently pricing for liquefied natural gas growth potential – as several projects could be sanctioned within 12 months.

Gas has a rapidly growing role to play in fuelling the world, no matter how optimistic certain renewable energy targets may be, and as the lowest cost producer on the market, the company is in extremely strong financial shape to weather volatile crude prices in the near term and to reactivate growth projects when prices are again supportive.

At prices ~$25 per share Woodside is trading more than 10% below fair value based on consensus valuation and on significantly lower earnings multiple than many of its energy peers while offering a far superior 4.9% fully franked dividend yield. With OPEC, lead by Saudi Arabia, recently announcing further production controls (a positive for near-term oil prices) we believe the current levels represent an opportunity to add to a tier-one resources company with strong growth potential.



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