This recent takeover offer leak and the flow of AFR articles has pumped the SP temporarily, this will only have the effect of scaring off a further bid from Harbour because a bid of say 5.20 would have represented the magic 30% premium and thus looked enticing when the SP was 4.00. now, at 5.00, it looks pathetic. to me, this signals that it was the board or other STO holders that see a bright future medium-term for the STO sp who leaked, in order to pump up the price and either achieve:
1) a higher bid by Harbour
2) a bidding war between suitors
3) no takeover at all.
I am happy with any of these 3 options, although i suspect the third is the most likely and this is my preferred option. looking at the present fair value estimates of most analysts being at or above 5.00 and regularly revised upwards, i see the future free cash flow outlook and debt reduction outlook as very positive now that the POO is looking set to remain at a minimum of $US45-50 with upside to 60-70 quite possible given the venezuelan crisis and middle east uncertainty plus OPECs discipline and the lag before further shale assets would be developed. the AUD looks to be on a downtrend that probably has further to run as resource demand slowly declines and the USD strengthens due to inflation and Fed tightening. the recent decline from 80 to 75c in the aud-usd is great news for exporters such as STO, despite the large proportion of earnings that are domestic.
the PNGLNG project is the jewel in the crown for me and it is in its infancy in terms of production and free cash flow, so with this and other resources the long-term earnings growth runway is very positive for the next 10 years as debt payments are reduced.
personally, having accumulated STO recently at an average of just over 3.00, it is of course tempting to take short term profits after a 60% gain in a few months, but i think after the takeover noise dies down and the sellers die down, we will see resumption of the long term uptrend that has formed and have a lot of steam in it as quarterly reports will continue to drive analyst upgrades as long as the POO holds at or above $US 50 most of the time (that is of course, a major assumption, but i risk I'm willing to take for only 5% of my portfolio). i think current FV is around $5 and would be looking for $6 by the end of 2018 as a price target, assuming no major changes to assumptions, POO, outlook. I doubt the board or shareholders would accept a bid much under $6 anyway, but i also doubt Harbour or anyone else would be willing or able to pay $6+, hence i don't think a TO will eventuate.
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