Woodside Energy Group Ltd (ASX: WDS) shares went under the spotlight this week after the company reported its FY25 half-year result. Now that the dust has settled after the result, we'll look at whether the stock is good value or not.
As a major oil and gas ASX share, its success in the short term is largely tied with what happens to energy prices. Extra revenue can largely add to net profit, while a reduction in revenue can heavily impact net profit, due to the fact that production costs don't typically change much each reporting period.
Woodside reported that its average realised price per barrel of oil equivalent (BOE) reduced 1% to US$61.8, though operating revenue grew 10% to US$6.6 billion, thanks to 11% higher production, particularly thanks to Sangomar.
Underlying net profit declined 24% to US$1.25 billion, and free cash flow dropped 63% to US$272 million. Its underlying base business delivered "strong" operating profit (EBITDA) of US$4.6 billion.
What does Macquarie think of Woodside shares?
Respected analysts from Macquarie said that the FY25 first-half operating profit (EBITDA) and net profit were in line with market expectations, though cash conversion was weak, leading to higher gearing (debt) levels on the business' balance sheet.
Macquarie was pleased to see production costs come down to US$7.70 per BOE in the first half of FY25. This was helped by the "excellent" performance at the Sangomar project (with costs of US$6 per BOE), but it also reflected some one-offs in the US that won't be repeated in the second half of FY25.
The analysts said that the Sangomar field has been "well managed" and the reservoir is "performing". It generated US$1 billion of net revenue in HY25.
With Louisiana LNG, Macquarie noted Bechtel has commenced construction, and Woodside has received US$1.87 billion from Stonepeak – the 40% sell down to Stonepeak supports Woodside's balance sheet and capital management.
Macquarie was also pleased to see the dividend payout ratio of 80% for owners of Woodside shares maintained after commentary about "dividend durability". The broker said it continues to forecast a payout ratio of 80% and this "declines in free cash flow terms" in FY26 and FY27 "as earnings decline". The broker believes the company would rather turn the dividend re-investment plan (DRP) back on than cut the payout.
On the negative side, Macquarie noted some elements, including the additional restoration cost provision of US$445 million for certain projects and the start-up of Beaumont New Ammonia being pushed to the second half of FY25 rather than the goal of mid-2025.
Macquarie increased its earnings per share (EPS) estimates for FY25, FY26, and FY27 by 5.7%, 8.6%, and 6.2%, respectively, mainly because of a reduction in (non-cash) depreciation and amortisation charges in those years' projections.
Is the ASX energy share a buy?
Macquarie is currently neutral on the business, with a price target of $25, implying a small reduction over the next 12 months.
Explaining its view on Woodside shares and the potential for energy price weakness, the broker wrote:
Potential for oil weakness: Our Houston-based Oil & Gas strategy team led by Vikas Dwivedi pointed out late last week that it is seeing four distinct signals of a meaningful decline in oil prices ahead: 1) wider light-heavy differentials; 2) softer HSFO balance; 3) falling mid-distillate cracks; and 4) rising oil inventories in Western markets. Woodside's growth strategy is stretching the balance sheet more than we had expected at this point (gearing 19.5%), and this makes it a lot more sensitive to an oil price fall in the next 12 months (e.g., prior to Scarborough coming online).
…Neutral. Our lacklustre oil and weakening spot LNG outlook (in 2027/28) makes it difficult to be more positive here, particularly with higher-than-expected gearing with much capex still ahead). WDS should benefit from flow as the XRG/Carlyle takeover of STO progresses to binding.
