The Woodside Petroleum Limited (ASX: WPL) share price is currently rated as a buy by one of the leading brokers.
That broker is UBS.
The price target on Woodside is $25.50. That suggests that the broker believes Woodside shares could rise more than 7% over the next 12 months, if the broker is right.
Expectations of a rising oil price are leading to the broker believing that Woodside can generate more profit.
Using the current estimates, UBS puts the Woodside share price at 16x FY21's estimated earnings with a potential grossed-up dividend yield of 9.2%.
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What is going on for Woodside Petroleum?
Woodside announced a game-changing move in the middle of August 2021.
It revealed that it was going to merge with the oil and gas business of BHP Group Ltd (ASX: BHP). This deal would create a global top 10 independent energy company by production.
Woodside will be issuing new shares to be distributed to BHP shareholders. The expanded Woodside would be owned 52% by existing Woodside shareholders and 48% by existing BHP shareholders.
This merger will create a business that has a "high margin oil portfolio, long life LNG assets and the financial resilience to help supply the energy needed for global growth and development over the energy transition."
Woodside also broke down some of the reasons and benefits of the deal:
- Greater scale and diversity of geographies, products and end markets through an attractive and long-life conventional portfolio.
- Resilient, high margin operating cashflows to fund shareholder returns and business evolution to support the energy transition.
- Strong growth profile with a plan to achieve targeted Scarborough final investment decision in the 2021 calendar year and capacity to phase the most competitive, high-return options within the portfolio.
- Estimated synergies of more than US$400 million per annum from optimising corporate processes and systems, leveraging combined capabilities and improving capital efficiency on future growth projects and exploration.
This merger could have an important impact on the Woodside Petroleum share price if/when it goes ahead.
HY21 result
Woodside has a financial year that lines up with the calendar year. So, in August it reported its half-year result.
That result showed that it recorded a half-year net profit after tax (NPAT) of US$317 million. Underlying net profit after tax was US$354 million, up 17% on HY20. Operating revenue increased 31% year on year to US$2.5 billion thinks to higher prices, with sales volume increasing 6% to 53.9 million barrels of oil equivalent for the half.
It also generated $1.32 billion of operating cashflow and free cashflow of $311 million.
Based on that result, the directors decided to declare an interim dividend of US$0.30 per share, which was a payout of approximately 80% of underlying net profit after tax.
Longer-term valuation on the Woodside Petroleum share price
UBS thinks that Woodside shares are valued at 14x FY22's estimated earnings, with a projected forward grossed-up dividend yield of 12.5%.
