Finding the story behind the numbers in any share investment begins with the company’s annual report.  There you will find explanations of what the company has been doing, and is expecting to do, that has driven past performance and will drive future performance.

The Internet has made dramatic improvements in the ease with which retail investors can use annual reports.  Today, most reports are interactive and you can “flip through” a report with ease.  

In the case of WPL, where you begin to look “behind the numbers” depends largely on your current knowledge of the industry.  On the opening screen of the WPL annual report, you have your choice of where to begin.  Investors knowledgeable about the industry might elect to go immediately to the Performance at a Glance section.  (Click here to download the annual report).

However, suppose you know little about the oil and gas business.  Where should you begin?  For that matter, should you be considering investing in an industry about which you know nothing?

Serious share market investors read as much as they can about the wonderful world of investing and eventually they come across the sage advice to buy what you know.  Peter Lynch became the most successful mutual fund manager in history following that principle.  Warren Buffet claims he does not invest in technology stocks because he does not understand them.

If the Internet has improved access and readability of annual reports, it has revolutionised the way we learn.  Today, perhaps the more salient advice is not buy what you know, but buy what you have an interest in learning.

Newcomers to share market investing that read last weeks Sector Scan recommending WPL might not have known exactly what LNG is.

If you learn to read an annual report in conjunction with Internet searches, there is literally nothing you cannot learn.  Start with the About Woodside section and you will learn the company’s history and its broad plans for the future.  It should not take long for you to determine the WPL story is all about LNG (Liquefied Natural Gas) and its future.

Take a moment, open a new window in your browser, and search LNG.  Once you have an idea what LNG is, you will want to know its future growth potential, as well as how WPL fits into that picture.

The section entitled LNG Market Report addresses how WPL sees the future of LNG and their role in it.  Those who believe there will be explosive growth in this market in the near future may be surprised that, by the numbers, WPL appears relatively cheap.   Their P/E Ratio of 24.85 is not indicative of an explosive growth share nor is their PEG of 1.06.

The LNG Market Report section contains the first clue as to why this is so.  Here is what WPL has to say about the current state of the market:

•    The market is currently well-supplied following recent start-ups from several new projects. Looking forward there is limited additional new capacity under construction that will reach the market before 2014. As a result the market is progressively tightening, at least until the middle of this decade

For some investors, this is all they need to know.  With the global economy not yet fully recovered and with wild swings in commodity prices, the risk here is not worth the reward.  

However, additional reading of the annual report shows WPL is a well-diversified energy producer, with business operations in other areas.  In addition, they have a very stable history of dividend payments.  Perhaps the risk is not as great as you might think.

A by the numbers quantitative analysis of WPL exposed some concerns about both their liquidity and their debt.  From reading the LNG Market Report, you know they are investing heavily in expansion of their LNG capacity.  

Read the Chairman’s Report section and you learn their major project – Pluto – has had cost overruns and completion delays.  To some investors, this is not a sign of weakness; rather it is a sign of strength.

Move on to the Business Review section and you can see WPL operates in seven different business segments – with one LNG project – Pluto – scheduled to begin generating revenue in 2011 and two more in earlier states of stgelopment.

Investors more concerned with Woodside’s debt load can read the CFO (Chief Financial Officer) Report, keeping in mind that as valuable as they are, annual reports are company statements that always present performance in the best possible light.

To dig a little deeper for the story behind the numbers, at some point you need to look elsewhere for verification of what you have read in the annual report.

In times gone by, that task was beyond the capability of most retail investors.  Today, the Internet makes it possible, subject only to the limitation of your own creative use of search terms.  

Searches aside, you can also see the news history, company reports and announcements here in TheBull’s data section – Woodside Petroleum News History.

You will uncover the fact WPL is planning to issue 700 million in new corporate bonds.  The proceeds will retire some existing debt coming due in 2011 and fund continuing operations and expansion.  Most experts would view that as a good thing.

You will learn WPL recently discovered new oil-bearing sands off the coast of Western Australia.

Perhaps the biggest news of all is the reported rumour that minerals and mining giant BHP is interested in acquiring WPL.  If BHP sees the potential in WPL, investing in WPL now might be well worth the risk.

In conclusion, to look behind the numbers for potential share targets, there are three things you need to do:

1.    Read Annual Reports.
2.    Learn what you don’t know through online searches.
3.    Read company-specific news items and industry-related items through online searches.