Energy

A merged Woodside is now a top-ten global player

Wed 01 Jun 22, 1:22pm (AEST)
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Key Points

  • Woodside is now the eighth largest stock on the ASX 200 index with a market capitalisation of $57.8bn
  • A material boost to cash flow will come from a doubling in production capacity to around 193m barrels of oil equivalent a year
  • Trading volume was more than double that of its four-week average

With the merger of Woodside Energy’s (ASX: WDS) and BHP’s (ASX: BHP) oil and gas portfolio now complete, new Woodside shares are expected to commence trading on the ASX tomorrow (2 June 2022).

In summary, Woodside acquired the entire share capital of BHP Petroleum International Pty Ltd (BHPP) and issued 914.7m new Woodside shares to BHP. As of tomorrow, Woodside will become the eighth largest stock on the ASX 200 index with a market capitalisation of $57.8bn.

As a top 10 global independent energy company by hydrocarbon production and the largest energy company listed on the ASX, management expects the company’s more diversified portfolio to deliver significant cash flow to help fund the company’s energy transition and shareholder returns.

Cash flow boost

According to ratings agency S&P Global, a material boost to cash flow will come from a doubling in production capacity to around 193m barrels of oil equivalent a year.

Woodside’s net profit after tax for the first half of FY22 is expected to incorporate the contribution of the BHPP portfolio.

Woodside will receive net cash of around $US1bn, including the cash remaining in the BHPP bank accounts immediately prior to completion.

This reflects $1.8bn of net cash flows generated by BHPP between the effective date of 1 July 2021 and completion, less $800m which represents BHP's entitlement to cash dividends paid by Woodside over the same period.

Major synergies

Woodside CEO Meg O’Neill advised the market today that the company is focussed on unlocking $400m-plus in pre-tax annual synergies after completing its massive merger with BHP.

"We believe the completion of the merger will enable Woodside to play a more significant role in the energy transition that is imperative as we respond to climate change while ensuring reliable and affordable supplies of energy to a growing and aspirational global population," O'Neill says.

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Woodside's share price ascent over 12 months.

What brokers think

Despite being up 35% for the year, on the back of a 65% yearly change in Brent crude oil and a 165% gain for US natural gas prices - Woodside struggled to keep a pace of the broader market in May.

Not even the continued rally in oil and gas markets – with Brent crude up 10% last month -could stop investors from selling off Woodside in May, with the share price at the open $29.75 (down -0.64%) down from the former high of $34.41 early March.

Trading volume was more than double that of its four-week average at more than 12.6m shares.

Consensus on Woodside is Moderate buy.

Based on Morningstar’s fair value of $32.59, the stock appears to be undervalued.

Based on the seven brokers that cover Woodside (as reported on by FN Arena) the stock is currently trading with 7.2% upside to the target price of $31.68.

While Morgans expects the merger to be broadly value-neutral, the broker believes the benefits include a larger earnings platform, a more diverse portfolio and a stronger balance sheet.

The broker retains the Add rating with the target shifting to $32.90 from $33.60. (31/05/22).

After revising its long-term LNG price forecast, Credit Suisse increases its target price for Woodside by 13% to $34.37 and retains an Outperform rating. (10/05/22).

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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