MS report 2018 Quadrant cashflow entitlement. SP target...

MS report
2018 Quadrant cashflow entitlement.
SP target unchanged $8.30

Quadrant Completion

Santos has announced the completion of the Quadrant Energy acquisition. On completion, Santos paid US$1.93bn vs our assumption of US$1.8bn. The slightly higher figure paid relates to an earlier completion date than we were assuming (Santos was entitled to the Quadrant cashflows from start of 2018). Santos has guided to gearing of around 33% at year-end, this is below our assumption of 36%. At current spot prices, we expect Santos to pay off around US$0.5bn of debt in 2019. This assumes higher capex in 2019 at around US$1bn. If oil can retrace back to the low US$70s/bbl next year following the OPEC meeting, we would expect Santos to pay back around US$0.7bn of debt next year at the higher capex assumption. We remain Overweight Santos and view the recent pullback as an opportunity to accumulate the stock.