Investment In Scarborough And Trion May Shape Future Amid Market And Safety Challenges

Key Takeaways

• Strategic growth projects and acquisitions position Woodside Energy Group for enhanced revenue and long-term value creation, driven by increased production capacity and substantial free cash flow.
  
• Strong LNG demand and expected supply gaps in Asia boost revenue potential through favorable pricing, alongside rigorous cost-control measures improving net margins.
  
• Project delays, regulatory challenges, oversupply concerns, and high capital expenditures pose risks to Woodside Energy's future earnings, cash flows, and profitability.

Catalysts

Engages in the exploration, evaluation, development, production, marketing, and sale of hydrocarbons in the Asia Pacific, Africa, the Americas, and the Europe.

• Woodside Energy Group is investing in significant growth projects, including Scarborough, Trion, and the Louisiana LNG projects. These developments are positioned to generate substantial free cash flow over the next decade, potentially enhancing revenue and earnings.
  
• The company expects a 4% to 5% compound annual growth rate for portfolio sales from 2024 to 2030, indicating strong future revenue growth driven by new projects and increased production capacity.
  
• With strategic acquisitions, such as the Beaumont New Ammonia Project and the acquisition of Tellurian and the Louisiana LNG development, Woodside aims to expand its portfolio and boost long-term value creation, positively impacting revenue and cash flow.
  
• The strong demand and long-term supply agreements for LNG within Asia, along with expected supply gaps emerging in the 2030s, present a positive price environment for Woodside, likely driving revenue growth through higher realized prices.
  
• Woodside's rigorous focus on cost control, operational efficiency, and safety performance, including reducing unit production costs, is expected to improve net margins and contribute to strong financial performance in future periods.

Woodside Energy Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Woodside Energy Group's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 27.1% today to 14.8% in 3 years time.
• Analysts expect earnings to reach $2.0 billion (and earnings per share of $1.09) by about March 2028, down from $3.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.7 billion in earnings, and the most bearish expecting $1.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.8x on those 2028 earnings, up from 7.7x today. This future PE is greater than the current PE for the AU Oil and Gas industry at 17.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.99%, as per the Simply Wall St company report.

Woodside Energy Group Future Earnings Per Share Growth

Risks

• The tragic death of a construction worker at the Beaumont New Ammonia Project serves as a reminder of potential safety risks. This could impact operational efficiency and increase costs, affecting net margins.
  
• Project delays and regulatory challenges, such as the approval delays for the North West Shelf life extension, could hinder timely revenue generation and increase costs, posing a risk to future earnings.
  
• The global LNG market is experiencing potential oversupply concerns despite current demand forecasts, which could lead to lower realized prices and impact Woodside's revenue.
  
• High capital expenditure on major projects like Louisiana LNG, without guaranteed sell-downs to offset costs, could strain the company's balance sheet and affect future cash flows and profitability.
  
• Despite overall financial strength, the company has been impacted by lower average realized prices, suggesting volatility in revenue streams and potentially impacting net margins.

Valuation

• The analysts have a consensus price target of A$28.182 for Woodside Energy Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$41.78, and the most bearish reporting a price target of just A$24.02.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $13.9 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 20.8x, assuming you use a discount rate of 8.0%.
• Given the current share price of A$22.84, the analyst price target of A$28.18 is 19.0% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.