Will Santos ever recover?, page-337

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etherazer

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26/07/18

10:53

Post #: 34571136
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Originally posted by googoogaga ↑

Morningstar....

Santos Limited (STO) Update:

2Q Production and Pricing Drive No-Moat Santos' Debt Lower.
FVE Increased to AUD 6.50
Recommendation: Hold
Change: No Change

We increase our Santos fair value estimate by 3% to AUD 6.50 per share from AUD 6.30, with higher near-term energy prices and the time value of money partially offset by lower-than-expected noncore Asia asset sale proceeds. While our midcycle Brent crude price forecast is unchanged at USD 60 per barrel (2021 real), our forecast average for the four years to calendar 2021 is increased by 10% to USD 70.80 per barrel. At AUD 6.05, no-moat Santos shares remain undervalued, and we think the market is insufficiently pricing for LNG project worth. And this is before potential for incremental gains via debottlenecking and simply growing share of equity gas feed.

The PNG LNG project is a case in point with capacity having crept to 8.3Mtpa from less than 7.0 Mtpa in 2014. But Gladstone LNG and Darwin LNG are also potential contenders for capital-efficient expansion, and for Santos to provide a growing proportion of their gas feed. The Barossa gas project has progressed to front-end-engineering-and-design phase with a final investment decision slated for end 2019. Santo' 25% equity stake is double its 11.5% Darwin LNG stake, where the gas is likely to call home, just 300km away. Santos can monetise resource positions like Barossa early via partial sell-down, or leverage them to earn increased equity stakes in existing infrastructure.

Sell-down of the noncore Asia portfolio for USD 221 million, and Denison Trough assets for up to AUD 43 million, somewhat understated their combined value per our modelling, though with proceeds to be appropriately put to debt reduction. Group net debt stood at USD 2.4 billion at end June, before sale proceeds, and already creditably down on the USD 2.8 billion net debt figure from six months prior. Current net debt/EBITDA of 1.6 is eminently manageable and Santos' net debt target of AUD 2.0 billion by 2019 is within easy reach. Our modelling suggests the target could be all but met by end 2018, with accompanying net debt/EBITDA just 1.3.

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"While our midcycle Brent crude price forecast is unchanged at USD 60 per barrel (2021 real), our forecast average for the four years to calendar 2021 is increased by 10% to USD 70.80 per barrel"

Beach quarterly is out and it shows the June quarter oil price received by BPT was AU$103 so the Morningstar forecast is effectively a forecast downgrade to the comparable Australian crude POO that Santos is currently receiving for its local product and yet this analyst is upgrading their target price to $6.50 based on forecast lower US POO.

"Average realised oil price of $103.2/bbl was 11% ahead of the March quarter, supporting a
20% increase in sales revenue to $471 million."

STO Price at posting: $6.24 Sentiment: Buy Disclosure: Held
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(20min delay)
Last $6.84		Change -0.080(1.16%)		Mkt cap ! $23.02B

Open	High	Low	Value	Volume
$6.92	$6.94	$6.75	$97.69M	14.28M

Buyers (Bids)

No.	Vol.	Price($)
6	96681	$6.83

Sellers (Offers)

Price($)	Vol.	No.
$6.84	5679	1

View Market Depth

No.	Vol.	Price($)
4	129176	6.920
6	233123	6.910
9	295156	6.900
11	303505	6.890
4	129828	6.880

Price($)	Vol.	No.
6.940	107742	9
6.950	424616	27
6.960	247191	13
6.970	73167	4
6.980	17507	1

Last trade - 16.10pm 27/09/2024 (20 minute delay)

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Will Santos ever recover?, page-337

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