Commsec have WPL as their stock of the week with $40 as fair value!
"As Australia's premier dedicated oil and gas player, Woodside Petroleum possesses operations encompassing liquefied natural gas, natural gas, condensate, and crude oil. LNG is the mainstay, with more than 20 years' successful delivery of cargoes to East Asian customers. Woodside has operatorship and a one-sixth share in the North West Shelf Joint Venture, or NWS/JV, on the north-west coast of Western Australia. Under its watch, the number of LNG trains has grown from one to five, taking gross output to 16.4 million metric tons per year. This pedigree is unmatched in the Australian oil and gas space, and there's more potential development in the pipeline if prices will allow. Missteps, including commissioning delays and cost blowouts during the China-driven resources boom, are now past. Woodside has demonstrated commendable conservatism in capital allocation over several years.
Event Analysis
Woodside's 2017 Earnings Largely as Expected. Raising AUD 2.5 billion in Support of Expansion.
Our AUD 40.00 fair value estimate for no-moat Woodside stands. Excluding a USD 120 million pretax provision release, the company reported 9% increase in underlying 2017 NPAT to USD 940 million. This was a touch below expectations, but cash flow was in line. Woodside also announced a AUD 2.5 billion discounted one-for-nine entitlement issue. Fair value is protected in real terms by the bonus element in the entitlements, but the 98.7% dilution factor is regardless relatively benign and largely offset by other factors including time-value-of-money. We recommend shareholders take up the offer given the AUD 27 issue price sits at a 30% discount to our fair value, and a 10.3% discount to the dividend adjusted theoretical ex-rights price. The retail offer opens on Feb. 21 and ends on March 7. Rights trading from Feb. 21 to Feb. 28 will allow those choosing not to subscribe to avoid potential modest dilution.
Woodside will partially use proceeds to acquire from ExxonMobil up to a further 50% interest in the largest portion of the Scarborough offshore WA gas field--of which it already owns 25%--for USD 444 million up-front, plus an additional USD 300 million upon a final investment decision. If Scarborough partner BHP Billiton pre-empts for its half share, the interest acquired by Woodside will commensurately halve to 25%. We think this logical value-for-money acquisition for Woodside that further bolsters the pathway to low-cost Pluto expansion. The balance of proceeds will go to medium-term funding requirements for Scarborough and Browse projects.
Pluto expansion potential is attractive given reduced capital intensity on the existing infrastructure footprint, which will help returns on invested capital to recover to a WACC equalling 9.3% and above by 2025, though not sufficiently so to warrant a change to our no-moat rating. Woodside estimates a Scarborough to Pluto capital costs at USD 8.5-9.7 billion, including up- and down-stream and a second LNG train."
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