Contrarian Buy-recommended Woodside Petroleum Ltd. (WOPEY.PK) offers unlevered appreciation potential of 11% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of US$44 a share. Half-yearly results released on February 24 reaffirm a base for projecting cash flow for 2010.
The company’s high growth prospects support a moderately high cash flow multiple (PV/Ebitda) of 12 times. Management believes plans are coming together to expand Liquefied Natural Gas Capacity six-fold by 2020. To oversimplify it, about half of current revenue, cash flow and earnings might grow six times, implying that the total might grow more than three times in ten years, or some 12% a year.
Except for a current labor dispute, a doubling of LNG capacity in two years appears assured with the Pluto Train 1 construction that is 85% complete. Further expansions will be in competition with other projects. At the same time, LNG is still a small part of the global natural gas and energy market.
Meanwhile, the company has its financing in place for 2010 having sold 60 million new shares in the past two months for about US$2.4 billion at a price of about US$39 a share. We like the strategic potential of concentrated LNG representation in Woodside stock.
Originally published on February 25, 2010.