The Shifting Thesis on WDS

Anyone else notice HC has quietened right down in this bear market ? With so much less to read and comment on please forgive the indulgence of me going back over the shifting thesis on WDS.

Early 2020

WDS sp at mid $30s - trading as a dividend stock- doubts over the future of oil - ESG shackling the stock. Not a particularly attractive investment as far as capital growth.Price of oil mostly around $US50/$US60 around this time.

Mid 2020 - COVID hits

WPL sp dives into the $teens. Price of oil actually goes negative ! (Negative was an anomaly however through mid part of year oil prices were mostly $US30/$US40) Not much margin for oil and gas producers at these prices. WPL sp languishes over fears of long term impacts of COVID on demand for oil

It sounds dramatic to say now but for a brief period there were fears humankind had no counter for COVID and it might wipe out half the worlds population - not good for oil demand !

Late 2020 to late 2021

No love. COVID continues to destroy demand and investors/fund managers shun the stock on ESG grounds (easy to do when there are no returns anyway)

BHP joins the woke movement and divests BHPP to WDS - mixed views at this time about who was the winner

The Glasgow summit reinforces the hatred towards the evil fossil fuel pedlars. The WDS HC thread is alive with haters and scoffers.

Your thesis to invest at this time had to be twofold. You had to trust that the world would emerge from COVID and you had to believe that renewables weren’t going to be able to take over from fossil fuels as quickly as was being claimed.

Late 2021/early 2022

Early realisation that with the world emerging from COVID oil and gas demand was going to quickly recover. Oil prices creep up into the $US50s and then $US60’s

Q1 2022

Through the first 6-8 weeks of 2022 the price of oil really gets going and WDS is repriced from low $20s to high $20’s in a broader stockmarket that is going seriously backwards.24 Feb Putin invades Ukraine - looking back it is surprising to note that oil prices didn’t immediately kick. Mid Feb WDS announces big profits and a ‘back to the good old days’ $1.46 dividend.

Q2 2022

Energy crisis unfolds and the shortcomings of renewables is exposed .....oil prices surge to $US130. WDS gets to $36Q3 2022 Brent eases back and spends the quarter mostly in the range of $US90 to about $US105. Markets juggle the demand v supply arguments for oil and gas (the ESG noise from last year about ‘stranded assets’ and oil and gas being dead within 10 years largely gone now) WDS mostly in the low $30’s but announces another bumper dividend.

Q4 2022

More of the same. WDS mostly in the low $30’s. It really comes down to which argument you’re buying from week to week. The next few rounds of data out of the US could take markets down another 10% or get them motoring upwards 10% .....anyone’s guess.

At the current sp of around $33/$34 WDS still only carries a P/E of 7 and a fully franked dividend of 9%. It’s tough to argue it’s a ‘sell’......and anyway.....if you cash out where better place is there to park the proceeds ?

Brent down again overnight - WDS likely to give back much of Friday’s gains on Monday which will probably have it sitting around $33. Like many other stocks across most sectors this now has a pretty pessimistic outlook priced in (Oil demand forecasts were revised downwards overnight)

The graph below shows that even if you missed the major re-rate in Jan/Feb, your capital has been preserved all year in a bear market and $3 worth of dividends (not reflected in the graph) has been banked along the way.



Going forward it’s hard to see the trend collapsing completely out of the white circled area.

So the mid Oct 2022 thesis on WDS is a strong hold at worst I think.