Investments In Driftwood LNG And Clean Ammonia Will Strengthen Future Market Position

Key Takeaways

• Successful project execution and strategic acquisitions in LNG and clean energy could drive revenue growth and operational efficiency.
  
• Strong LNG demand and investments in lower carbon trends potentially enhance Woodside's market position and future earnings.
  
• Concerns over LNG oversupply, increased debt, and geopolitical risks could pressure Woodside's financial stability, future profitability, and revenue streams.

Catalysts

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

• The successful startup of the Sangomar project and progress at the Scarborough Energy project demonstrate strong project execution, which could lead to increased production and revenue growth in the near future.
  
• LNG demand is expected to remain strong, supported by the global energy transition from coal to gas, particularly in Asia-Pacific. This could lead to sustained pricing and revenue growth for Woodside.
  
• The proposed acquisition of Tellurian and its Driftwood LNG development positions Woodside as a significant player with potential increased cash generation and reduced emissions, impacting future revenue and earnings positively.
  
• Woodside's targeted investments in asset life extension and production optimization could improve operational efficiency, reducing costs and potentially increasing net margins.
  
• The acquisition of OCI's Clean Ammonia Project aligns with global trends towards lower carbon energy, which could open new revenue streams and contribute towards achieving Scope 3 emissions targets.

Woodside Energy Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Woodside Energy Group's revenue will grow by 1.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.8% today to 15.9% in 3 years time.
• Analysts expect earnings to reach $2.1 billion (and earnings per share of $1.09) by about February 2028, up from $1.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.9 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 20.6x on those 2028 earnings, up from 15.8x today. This future PE is greater than the current PE for the AU Oil and Gas industry at 13.7x.
• 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 7.77%, as per the Simply Wall St company report.

Woodside Energy Group Future Earnings Per Share Growth

Risks

• Concerns about potential LNG oversupply and its impact on pricing could pressure Woodside’s revenue and earnings from LNG operations.
  
• Increased debt levels to fund acquisitions might raise the company’s gearing above the target range, potentially affecting financial stability and net margins.
  
• Execution risks linked to the Driftwood LNG and other projects, such as achieving returns and operational reliability, could impact future profitability and cash flows.
  
• Potential regulatory challenges and environmental approval delays for key projects like Browse may defer future revenue streams.
  
• Geopolitical risks and government intervention, as seen with expected contract renegotiations in Senegal, could affect existing and future returns, impacting net margins.

Valuation

• The analysts have a consensus price target of A$28.757 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$41.29, and the most bearish reporting a price target of just A$22.93.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $13.1 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 20.6x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of A$24.71, the analyst price target of A$28.76 is 14.1% higher.
  
• 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.