Woodside, page-4977

Today in Motley Fool:

Why this fund manager is bullish on the Woodside share price

Simon Mawhinney, chief investment officer at Allan Gray, believes that Woodside is currently materially undervalued (courtesy of The Australian Financial Review).

"They're the red-headed stepchild in the mix," Mawhinney jested. "And it is polluting the world that we live in, but we need them."

Among the reasons he said that the Woodside share price looks cheap today, Mawhinney pointed to the company's acquisition of BHP Group Ltd's (ASX: BHP) petroleum arm, BHP Petroleum International, in June 2022 in an all-stock merger.

He said that the accounting impacts of that acquisition via an all-share offer sees Woodside's earnings understated.

"If you buy something for scrip at a very high price, you end up depreciating that true income statement in subsequent years at an accelerated rate," Mawhinney said.

He also doesn't believe that global oil prices can remain this low over the longer term.

"In our view, US$65 a barrel is unsustainably low for most oil companies to continue producing," he said.

As for Woodside shares, Mawhinney said:

Earnings are low at US$65, and the price is cheap at US$65 a barrel and the current share price. So it feels like there's an asymmetric skew to the upside. That's one of the reasons it's our largest investment.