Woodside Energy: Conveying confidence on capital controls

About the author:

Author name:

By Nick Harris

Job title:

Senior Analyst

Date posted:

28 February 2023, 7:30 AM

Sectors Covered:

Telecommunications, Technology

• Woodside Energy (ASX:WDS) reported a softer than expected 2022 earnings and dividend result, relative to consensus expectations.
• Underlying EBITDA US$11,234m (vs MorgE US$10,990m vs consensus US$12,077m), +172% vs pcp.
• WDS declared a final dividend of USD 144 cps (-8% vs consensus), maintaining an 80% payout ratio of underlying NPAT.
• FY23 production and capex guidance has been maintained with FY23/24 shaping up to be capital intensive years for WDS.
• Viewing WDS as trading close to our Target Price we maintain our HOLD rating.

FY22 result recap

Underlying EBITDA of US$11,234m (vs Visible Alpha consensus US$12,077m / MorgE US$10,990m) was a -7% miss vs consensus but +2% on our forecasts.

Group underlying NPAT of US$5,230m (vs consensus US$5,553m / MorgE US$5,192m) was close to our estimate and -5% vs consensus. 

Group EBITDA and underlying NPAT were +172% and +223% vs pcp, respectively, helped by the mid-2022 merger with BHP Petroleum. Ahead of its targets, WDS expects US$400m+ in annual synergies from the merger going forward.

WDS generated FCF of US$6,546m (+669% pcp) and declared a final dividend of USD 144 cps (-8% vs consensus). This brings the full year FY22 dividend to USD 253 cps (+87% pcp). 

WDS realised an average price of US$98.40/boe (+62% pcp).

Net debt finished the year sitting at US$571m, with gearing sitting at 1.6%. However, if we are to include the upcoming payment for the declared final dividend then gearing would sit at around ~9% (vs WDS’ target range of 10-20%).

Analysis

WDS declared impressive dividends for the 2022 year, driven by upsized earnings realised from the acquired BHP-P assets. On the result call, WDS confirmed that it would consider sacrificing its gearing target of 10-20% temporarily in order to maintain its dividend profile in high capex years.

WDS’ view is that the target gearing range is a through-the-cycle target so there would be periods when WDS trends above or below that range. We are forecasting dividends do reduce in the coming years as WDS go through a capital-intensive period from FY23-24. 

Production (180-190mmboe) and capex (US$6.0-$6.5bn) guidance for 2023 were maintained. A significant step up in capex vs the ~US$4bn in 2022, with construction advancing on Scarborough/Pluto T2 and Sangomar.

Sangomar remains on track for first oil in late CY23, while Scarborough has seen some delays from the changing landscape in secondary approvals for offshore drilling. WDS is still targeting its first LNG cargo in 2026.

WDS commented that they are still interested/assessing M&A opportunities, primarily in the Gulf of Mexico (GOM), as well as pursuing further organic growth through ongoing drilling around its existing GOM operations.

Forecast and valuation update

We have made minor adjustments to our estimates post the CY22 result, with an unchanged valuation-based Target Price of (login to view).

Investment view

We have a positive view on WDS in terms of its fundamentals, balance sheet, and asset portfolio; although view its current share price as already reflecting fair value against our expected TSR.

Maintain our Hold rating.

Price catalysts

• Scarborough/Pluto T2 and Sangomar execution.
• Dividend and M&A.

Risks

• Execution on key growth projects.
• Oil and gas demand/supply fundamentals.

Find out more

You can find further detailed analysis of company results this reporting season by browsing our reporting season tag, and view a full list of upcoming results on our Reporting Season Calendar.

If you would like more information, please contact your adviser or nearest Morgans office. 

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