Insights

The Woodside (ASX:WPL) share price could be worth $28: broker

Could the Woodside and BHP merger present a big opportunity?
The post The Woodside (ASX:WPL) share price could be worth $28: broker appeared first on The Motley Fool Australia. –

The Woodside Petroleum Limited (ASX: WPL) share price slumped in afternoon trade. However, the downwards move is roughly in line with the steep selloff in the S&P/ASX 200 Index (ASX: XJO), which took a 1.91% tumble on Thursday.

Shares in the oil and gas giant finished 2.14% down to $19.20. Accounting for today’s move, the Woodside share price is almost flat from where it was a year ago.

On the other hand, a recent broker note portrays a positive outlook for the Woodside share price. The reasons are tied to the merger with the petroleum division of BHP Group Ltd (ASX: BHP).

Let’s take a closer inspection of these positive catalysts.

A winning combination for the Woodside share price

It has been shared that analysts from Bank of America have run the ruler over Woodside and crunched the numbers on its anticipated merger. While some shareholders have openly expressed concerns regarding the bold move, Bank of America analysts considered such worries to be blown out of proportion.

Instead, the broker detailed six reasons why the Woodside/BHP deal could be a positive:

A doubling of production and reserves
Higher cash flows
Reduced gearing
Merger synergies to the tune of $400 million per annum
Enhanced growth options, and
Potential for portfolio optimisation

In addressing clients, the analysts from Bank of America shared their perspective, stating:

WPL shares had previously underperformed due to concerns regarding a lack of attractive growth options and balance sheet concerns as it faced delays in farming down in Pluto Train 2 and Sangomar.

In our view, many issues facing WPL are mitigated by the proposed merger which should see WPL shares trade towards our DCF derived NPV/intrinsic valuation.

Considering all the factors, the analysts have revised their Woodside price target to $28 per share. This would suggest a potential upside of around 45%.

What’s next for the proposed merger?

In a presentation shared with investors on 17 August 2021, Woodside indicated it is aiming to sign the sales and purchase agreement (SPA) in October this year. Furthermore, the company plans to hold a shareholder vote in the second quarter of 2022.

From there, if all goes to plan, the transaction is expected to be completed in Q2 2022. Based on the current Woodside share price, the combined entity would fetch a market capitalisation of A$41 billion.

Finally, the combined company expects to produce 200 million barrels of oil equivalent. This would position it in the top 10 global independent oil producers in the world.

The post The Woodside (ASX:WPL) share price could be worth $28: broker appeared first on The Motley Fool Australia.

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More reading

5 things to watch on the ASX 200 on Thursday

The Woodside Petroleum share price is up just 2.5% in a year. Here’s why

5 things to watch on the ASX 200 on Tuesday

ASX 200 energy shares fell today – here’s why

5 things to watch on the ASX 200 on Monday

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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