Net profits down 74% for Woodside, is it time to sell?

Oil had a hard finish to 2023. After crude oil peaked at over $94/bbl in September, it had fallen below $80/bbl by the end of 2023. This was despite efforts by OPEC to cut production. Gas also saw muted prices compared to the previous years.

Unsurprisingly, these weaker commodity prices hit Woodside Energy (ASX: WDS) with the company announcing its net profits were down 74% on the previous year.

It wasn’t all bad news, with the company offering a higher dividend than the market had anticipated – still below 2022 levels. It also saw record production off the back of the merger with BHP Petroleum.

"While realised prices were down year-on-year to levels closer to historic norms, annual sales volume topped 200 million barrels of oil equivalent (over 548 Mboe/d), generating revenue of almost $14 billion. Free cash flow of $560 million was a significant achievement in a period of major capital expenditure and normalised prices,” said Woodside CEO Meg O’Neill.

Despite falls in profit, Michael Slack from Martin Currie, argues that the company is still a HOLD for a range of reasons, with the dividends no small part of this. In this wire, he discusses the results and outlook for the sector.

Woodside Energy full-year 2023 key results

• Net profit after tax - $1.66bn (down 74%)

• Operating revenue - $13.99bn (down 17%)

• Free cash flow - $560m (down 91%)

• Annual sales volume – 201.5 MMboe (up 19%)

• Fully franked final dividend US$0.60 (down 58%)

• Full-year fully franked dividend US$1.40 (down 45%)

This interview was held on 27 February 2024.

1. What was the key takeaway from this result?

I think there were a couple of key takeaways.

One was that they were able to maintain their 80% payout ratio on the dividend payment. They paid $1.40 franked over the course of 2023, which is better than the market expected because the 80% payout ratio was gauged off NPAT. That puts them on a 6% fully franked yield, so that’s quite attractive.

The other key was all of their growth projects are on schedule. Their Sangomar project off Senegal by middle 2024, they’re expecting Scarborough first cargo by 2026 and Trion first oil by 2028.

The other thing is they are on track to meet their 15% Scope 1 and 2 emission reduction target by 2025.

2. Were there any major surprises that investors should be aware of?

The dividend surprised positively, with the rest of the results pretty much as expected. WDS released production information and a number of line items at the end of January, so there wasn't too much scope for surprise in the result.

3. Would you Buy, Hold or Sell the stock on the back of this result?

Rating: HOLD

The dividend yield is supporting the share price where it is.

Woodside share 1-yr performance. Source: Market Index, 27 February 2024

4. What’s your outlook on this stock and the sector over the year ahead?

I think the sector is quite positive in the sense I expect commodity prices to hold up over the year ahead. I think the outlook for Woodside in that context would be very strong cashflows, which are supportive of dividends and delivery of their projects in the years ahead.

5. Are there any risks to this company and its sector that investors should be aware of?

Most of the risk is geopolitical.

For example, activity in the Middle East is having a big impact on oil markets. Activity in Europe is having a massive impact on gas markets as they wean themselves off Russian supply and have to put in re-gas capacity for LNG. A lot will depend on how the likes of OPEC and US navigate their way through the supply of oil and gas over the course of this year. If we see increased tensions in the Middle East that could help the sector.

6. From 1-5 where 1 is cheap and 5 is expensive, how much value are you seeing in the market right now? Are you excited or are you cautious on the market in general?

Rating = 4

We are cautious on the market. It’s trading at all-time highs. Some stocks that used to trade in high-teen multiples are now trading in the high 20s, so we’d be more cautious.

This article first appeared on Livewire Markets.

• View Presentation - WDS Full-Year 2023 Results and Briefing

• View Annual Report - WDS Annual Report 2023

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