What are your thoughts on a simplified DCF containing the following inputs:
FCF pa = 70 mmboe x ($60 avg pb - $40 be bp) = $1.4b
(Once 2017 annual comes in, we should be able to rec the figures back to their FCF break even guidance)
Growth 2017 -2022: 3%
Discount Rate: 10%
(I’ve calculated a WACC of 9%, so will push to 10)
Terminal Multiple: 5x
(I think this is a conservative multiple for oil and gas comps)
Diluted Shares outstanding: 2083m
Price per share: $5.63
All in all, if their guidance is correct the 2017 numbers may bring a positive surprise. 1) implications massive cost and capex reductions in rising oil price environment hasn’t been reported 2) Santos have actually been selling product at a premium to Brent prices - will be interesting to see the impact.
The above is admittedly a bit ‘back-of-the-napkin’ so happy to have additional input.
Aside from that, it sounds like your base case expects $6+ which suggests a ~34% upside.
Given the seemingly unlikelihood of oil going back below $40 pb anytime soon, mostly helped by OPEC + Russia and long term reduced capacity in general, what downside are you seeing? How does Origin have a better risk/reward characteristic?
Are you at a stage where these types of turnaround speculations are too risky and you’d prefer secure, dividend stocks?
Again, genuinely keen to learn and understand.
Not being snarky..
Personally I bought more at $4.46 today. I think KG has proven himself this year and will continue to do so through the growth phase.
STO Price at posting:
$4.49 Sentiment: Buy Disclosure: Held
