WPL leveraged to yield and growth

The world oil price, over the past two months, has taken a pounding, as Saudi Arabia ramped up supply in response to increases from Asia.

Oil
Source: Bloomberg

Libya has come back online and the market suggests global demand is falling off.

I see the Saudi situation falling off in the next three months as they will cut production once the current perceived supply theat slows. This will see the oil price bouncing up and normal conditions returning. I also see the fall in demand as a very short term concern and it too is likely to pick up.

It's for these reasons that being leveraged to energy will be advantageous over the coming six months. What's also going to be advantageous in the current low interest rate environment is a growth and yield play – This is why I see Woodside as a key pick in the current market as it has the profile for a good short term rally.

Three reasons to go long:

The North West Shelf. WPL’s Pluto project is producing high quality flow rates coupled with a growth profile that could see the project increasing in scale and longevity. Positive news here will see upside. Browse remains a key part of the project pipeline which WPL is committed to developing and any studies showing a viable rate of return will also send WPL’s share price higher.

Leveraged to Asian Demand. WPL continues to concentrate on sales revenue from Asia and with Japan, South Korea and China all increasingly hungry for diversifying its energy sources WPL is in a prime position to be leveraged to this growth market.

Payout ratio. With Pluto now online and revenue streams ramping up WPL changed its payout ratio policy for sub-50% to 80% of net profit. This is by far the largest payout ratio of any energy of materials play and makes it even more appealing to investors hunting capital return. If the energy price bounces the higher returns will translate in to higher dividend payments and further share price upside.

WPL
Click to enlarge

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