Credit Suisse slashes Woodside outlook

Credit Suisse has slashed its outlook and price target, warning it’s hard to find positive catalysts for the group.

The prospect of lacklustre growth at Woodside, led by chairman Rick Lee, is not a new issue.

Credit Suisse has slashed its target price for Woodside while downgrading the energy giant’s stock on rising concerns about its long-term growth prospects.

At the heart of the more negative outlook was a change to the investment bank’s modelling for production at Woodside’s flagship North-West Shelf project.

Credit Suisse is now expecting production declines at NWS from 2020, earlier than previously forecast, and a 60 per cent cut in LNG output by 2030.

The revision led Credit Suisse to trim its target price for Woodside from $27.10 to $25.65 and shift its rating from ‘neutral’ to ‘underperform’.

While the bulk of the target price reduction related to the outlook at NWS, a cut to Credit Suisse’s medium-term forecast for spot LNG prices also weighed.

The firm’s analysts also warned it was “hard to find” a positive catalyst for the group outside of the potential for a further recovery in oil prices.

“The unfortunate reality for us, despite Woodside boasting two low-cost, high quality LNG projects (and soon to be joined by a third in the shape of Wheatstone, albeit with cost and timing risk), is that there is very little obvious to us that Woodside can do to surprise on the upside,” the note from Credit Suisse read.

The prospect of lacklustre growth at Woodside is not a new issue, with the firm’s recent failed bid for Oil Search a sign it is aware of the long-term downside risks.

The latest report into the company hinted the Oil Search approach had its faults, but said the holes in the company’s prospects were mired in decisions made several years ago.

“While there has perhaps been some questionable M&A (and attempted M&A) in the new era, many of the challenges that the business now faces had seeds sown firmly in the past,” Credit Suisse said.

Current managing director Peter Coleman took the reins in 2011, succeeding Don Voelte who stepped down after seven years in control.

The analysis comes after the current Woodside boss this week hit out at the local LNG industry, saying it was being left behind by the US.

“There is a view that says if we wait, we don’t have to do anything because the demand of the developing world will grow ... and if we turn off coal power stations, gas demand will go up, and next year’s conference will be a rosy one,” Mr Coleman said in a presentation to the conference.

“Well, nothing could be further from the truth. Simply surviving is not an option ... we must change to grasp the opportunity in front of us.”

At 1.45pm, Woodside shares traded down 1.8 per cent at $27.23, underperforming against its energy sector peers.

Rival names in the sector such as Santos and Oil Search traded around 1 per cent higher after oil prices jumped 2 per cent overnight to a new 10-month high.

Analysts see the two aforementioned names as being more leveraged to oil price swings, with Woodside not reaping as much benefit from crude’s upturn in fortunes.

“Clearly oil is the big upside swing factor in an absolute sense, but with Woodside the least leveraged to rising oil of our coverage universe … we struggle to stack it up on a relative basis for that trade,” Credit Suisse said.