Woodside Energy Group Ltd (WDS:ASX)

Last update - 22 August 2023 By Rivkin

A holding within the BlueChip portfolio, Woodside Energy (WDS) - Australia's largest oil and gas producer - announced an uptick in its first-half financial results this morning.

The underlying profit for the initial six months reached $1.90 billion, marking a 4.2% rise compared to the previous year, and net income increased by 6.1% to $1.74 billion. However, there are some points of concern: free cash flow slumped by 88% year-on-year to $294 million, with the return on equity dipping from 10.1% to 9.7%. This was somewhat offset by the announcement of a $0.80 dividend, which was above estimates of $0.77. Despite this, investors reacted negatively this morning, with shares down by -1.2% compared to the ASX200, which is little changed. 

A standout aspect was the 27% surge in operating revenue, which peaked at $7.40 billion. Looking ahead, Woodside forecasts its production to be between 180 to 190 mmboe. In terms of project advancements, Woodside’s Scarborough development is nearing the halfway point with 38% completion. The Sangomar project is closer to completion, boasting an 88% rate. There is also optimism surrounding the Woodside Solar project, as the company is aiming for a Final Investment Decision (FID) in the latter half of 2023. 

A lingering concern for investors is the ongoing negotiations with workers at its North West Shelf LNG operation. The potential for strike actions looms, which could disrupt exports and tighten the global supply. 

Analysts have offered mixed reactions to Woodside’s financial results. While the underlying NPAT surpassed their forecast, there’s a sentiment of caution among investors regarding potential project delivery risks. Citigroup’s James Byrne highlighted the absence of significant project updates and drew attention to the weak cash result. 

Woodside’s recent financial results depict a company in growth, thriving from record output levels and a diversified project portfolio. Despite facing some challenges, particularly potential industrial actions and a decrease in cash flow, the long-term trajectory for WDS seems promising. However, like all commodity producers, its future will be heavily influenced by the outlook for energy prices. It’s worth noting that Woodside’s inclusion in the Blue Chip portfolio is based on the trailing dividend yield. Based on the updated dividend, it sits around 8.5% on a grossed-up basis, making it one of the highest-yielding stocks within the ASX50. The portfolio is set to be rebalanced on September 1st, and the share price’s performance between now and then will play a significant role in Woodside’s continued inclusion. 

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