Morningstar | Woodside's 1H Evidence of a Platform Primed for Growth. FVE Increased to AUD 46.50.
We increase our fair value estimate for no-moat Woodside by 3% to AUD 46.50, simply as a result of continued weakening in the AUD/USD exchange rate to roughly 0.73 from 0.75 prior. Our long-term operating assumptions are unchanged. Woodside reported a 12% increase in underlying first-half 2018 NPAT to USD 566 million, about 4% shy of our USD 590 million forecast. However, the small miss reflects chiefly a higher-than-anticipated effective corporate tax rate of 32%, due to timing issues. Net operating cash flow improved 22% to USD 1.2 billion, around 10% ahead of our expectations, facilitating faster-than-anticipated net debt reduction to just USD 3.0 billion.Our 2018 underlying EPS forecast marginally improves to AUD 2.18 from AUD 2.15, with the weaker Australian dollar more than offsetting any first-half earnings shortfall. An improved first-half dividend of USD 53 cents is in line with expectations, but the more favourable dollar translation again sees our full-year DPS increased 3.0% to AUD 1.77 from AUD 1.72. At the current AUD 35.30 share price, the 2018 dividend equates to a handy fully franked 5.0% yield, and that in a company with no shortage of healthy growth prospects. Woodside's 100 mmboe production target for 2020 is in line with our own, before we forecast growth to 130 mmboe from 2024, with a second Pluto LNG train contributing. Woodside delivered 44.3 mmboe of production in first-half 2018 and increased full-year 2018 guidance to 87-91 mmboe from 85-90 mmboe. Our target stands at 91 mmboe, already slightly above guidance high-end.
Woodside shares remain materially undervalued--we think the market insufficiently pricing for LNG growth potential. This is also before brownfield gains, including construction of the Pluto LNG truck loading facility, begun in April this year. The facility will distribute LNG to Pilbara customers from 2019 from a debottlenecked Pluto Train 1 designed to take capacity from the existing 4.8Mtpa to roughly 6.0Mtpa.
Our group fair value estimate equates to an unchanged fiscal 2027 EV/EBITDA of 10.6 crediting 10-year revenue CAGR of 7.4% to USD 8.0 billion. This is despite our forecast for an oil price declining by 17% to an unchanged midcycle USD 60 per barrel (2021 real). This assumes a near-50% increase in production or 4.0% 10-year CAGR. Most of this comes via completion of a second Pluto LNG train.
Our fair value estimate implies a 2027 P/E of 25.5, price/cash flow multiple of 16.0, and fully franked dividend yield of 3.1%, all discounted at WACC. Versus today's fair value estimate, the metrics are 10.7, 6.6, and 7.5%, respectively.
Our dividend yield forecast assumes continuation of an 80% payout ratio. Woodside has minimal near-term debt maturing and annualised first-half 2018 net debt/EBITDA of just 0.9 has the balance sheet in excellent shape for well publicised development plans. We expect this to include a second Pluto LNG train accessing Scarborough gas, and development of the Browse gas field for the North West Shelf joint venture. Concept selects for Scarborough and Pluto T2 are targeted by end this year.
The proposed Scarborough gas resource development in support of a second Pluto LNG train is being accelerated to ready for startup status by as soon as 2024 with second train capacity increased to 4.0-5.0Mtpa. We hold our forecast at 4.5Mtpa, with the second train comprising AUD 5.00 per share or 11% of our group fair value estimate. Pluto in its current one-train-only configuration comprises 50% of our group fair value estimate.
Woodside Petroleum is engaged in hydrocarbon exploration, evaluation, development, production and marketing. Co.'s operating segments include: North West Shelf Project, which is engaged in the exploration, evaluation, development, production and sale of liquefied natural gas, pipeline natural gas, condensate, liquefied petroleum gas and crude oil from the North West Shelf ventures; Pluto LNG, which is engaged in the exploration, evaluation, development, production and sale of liquefied natural gas and condensate in assigned permit areas; Australia Oil; Browse FLNG; and Wheatstone LNG. As of Dec 31 2015, Co. had proved reserves of 1.15 billion barrels of oil equivalent.
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