Woodside price cut post BHP merger report
UBS has reduced its merger price target by 5 per cent to $32.90 from $34.60 and retained a neutral rating.
Woodside Petroleum’s price target has been cut by UBS after the independent expert’s report into its BHP Petroleum merger put the combined value of the two companies 8-19 per cent lower than the broker’s estimate.
UBS reduced its price target by 5 per cent to $32.90, from $34.60, and retained a neutral rating after the expert put the combined group’s valuation in a range of $26.25-$29.81 a share.
The broker holds an 11 per cent higher rating at the midpoint due to a higher valuation for the Sangomar oil project in Senegal and Scarborough gas development in Western Australia, where it expects the Jupiter and Thebe gas fields to be developed.
Still, it ascribes less value to the North West Shelf and Pluto LNG plants in WA given UBS forecasts lower production.
Woodside could devote $US2bn-$US3bn ($2.7bn-$4bn) in capital management and retain gearing at 15 per cent based on UBS’s oil price forecast, handing it the ability to mop up cost over-runs and handle $5bn of new energy projects up to 2030. “The additional balance sheet capacity could allow Woodside to lift its dividend payout ratio towards the upper end of its target range (of 50-80 per cent) vs UBSe 65 per cent of underlying NPAT as technical risks on major growth projects are derisked over time,” UBS analyst Tom Allen said.
BHP shareholders will receive one Woodside share for each 5.534 BHP shares they hold, with BHP promising to distribute the shares as a “special dividend”, meaning $US10bn worth of franking credits would attach to the share issue.
Macquarie said BHP would keep sufficient franking credits to maintain its 100 per cent fully franked dividend stream with a $US10bn pile by the end of the 2022 financial year, equivalent to a dividend capacity of $US23bn.
Woodside’s share price has jumped 50 per cent since the petroleum demerger metrics were announced on November 22.
The two companies said the deal was on track to be completed by June 1. Woodside shareholders vote on the deal at the company’s annual shareholder meeting on May 19.