WDS - Xmas Wrap 2023

Please forgive me the indulgence of using this thread for my own (slightly biased) year end assessment of WDS.

Like millions of other investors with fairly well diversified portfolios I’ve enjoyed a great run over the past two months. This is despite WDS being a considerable drag on my gains. However after this market run, energy valuations look super cheap against nearly all other sectors (p/e ratios on US energy stocks now at 20 year lows against the S&P) - I’m staying patiently overweight.

Here’s an assessment against a number of headings :

Macro: OPEC look like they’re losing a little power in terms of their ability to manipulate oil prices and the US have stepped up production ….this hasn't helped oil prices but I still think demand for oil into the future is underestimated….and inflation dropping and interest rates declining is good for getting economies firing again ….and firing economies burn more oil and gas.

Domestic: the main concern has been and continues to be Albanese and his green knuckleheads. However the average voter/punter out there is being let down so badly by this pathetically woke and economically reckless government they look more and more like a one term abomination. A more sensible attitude towards phasing out fossil fuels may only be 18 months away.….and a liberal government would be surely less influenced by the lefty wacko’s and more fossil fuel (and WDS) friendly.

Geopolitical: I’ve mentioned before the Middle East powder keg and the insurance WDS provides against it. The recent events in the Red Sea (who saw that coming ?) have bumped up Brent 10%. The possibility of Geopolitical trouble at a whole new level in 2024 is one reason I continue to hold WDS.

Renewables: the renewables myth has been busted open in the last few years - massively subsidised by western governments yet still coming up laughably short. Even the starry eyed renewables dreamers are begrudgingly accepting that gas (if not oil) has to be a medium term transitional fuel. A lot of back pedalling is going on now that everyone has worked out 2030 and 2040 and 2050 targets are completely unachievable…..and there’s therefore many more decades of profitability ahead for WDS than previously thought. This makes me more willing to ride out this low point in the cycle.

STO merger: I’m fairly indifferent about this ….except to say I wouldn’t like to see anything other than a very small premium paid. The fact that the STO sp surged on the news while the WDS didn’t suggests the market thinks STO shareholders would be the winners with this merger.

India/China: I keep coming back to this. The world’s two biggest populations……they totally play the west when it comes to the big transition to renewables. They treated COP28 like a joke and they continue to import oil from Russia. These two will be burning fossil fuels for decades longer than they’ll ever admit. On top of this energy prices are currently muted by the lacklustre Chinese economy. Will the Chinese economy stay this way for years and years ? You have to think not. Any announcements around stimulus packages by the Chinese government will have an immediate impact on oil prices - could happen anytime.

Many analysts and financial commentators got it wrong with Energy and Healthcare as their top picks for 2023. I’m thinking after both had relatively poor years 2024 shapes up well for both (ie just like the way the market got way ahead of itself on renewables making oil and gas companies ‘uninvestable’ a few years ago …..weight loss drugs in 2023 suddenly had the markets pricing in a world full of thin fit healthy people who don’t eat fast food and never go to hospital….healthcare stocks remain oversold)

WDS attractively priced at $31 with surely another $1.20 or thereabouts dividend just around the corner now.

WDS still a Merry Christmas Buy for me.