Santos Limited

STO Details

Q4FY21 and FY21 Result Highlights: Santos Limited (ASX: STO) is involved in supplying natural gas in Australia and Asia. The company has a portfolio of high-quality liquefied natural gas (LNG), pipeline gas and oil assets

• Rise in Production: For the quarter ending 31 December 2021 (Q4FY21), STO reported total production of 22.9mmboe, taking the total FY21 production to 92.1mmboe, up 4% on the previous year.
• Increase in Revenue: For Q4FY21, the company reported sales revenue of US$1,532 million, up 34% on the previous quarter. Total revenue for FY21 stood at US$4,714 million, up 39% on the previous year.
• Merger with Oil Search Completed: Over the quarter, the company completed the merger with Oil Search, which increased the company’s scale and capacity to drive a disciplined, low-cost operating model and unrivalled growth opportunities over the next decade.

Listing on PNGX: On 13 December 2021, the company announced that it has been listed on the Papua New Guinea’s National Stock Exchange.

Production Trend

Key Risk:

• Fluctuations in Price of Oil and Gas: The company is exposed to the risks related to the fluctuations in the prices of oil and gas, as it could impact its financials.
• COVID-19 Uncertainties: The company is also exposed to the risks related to the uncertainties surrounding the COVID-19 pandemic, as it could impact its operations.

Outlook: Looking ahead, the company is focused on completing Barossa project, which is progressing on schedule and budget. For its Dorado Phase 1 and Pikka Phase 1 projects, STO is targeting FID in mid-2022 and the first half 2022, respectively. The company will announce its FY21 results on 16 February 2022.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last one month, the stock has provided a return of ~11.52% and is trading higher than the average 52-week price level band of $5.84 -$7.84. On a technical analysis front, the stock of STO has a support level of ~$6.75 and a resistance level of ~$7.43. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price with a corrector of high single-digit (in % terms). The company can trade at a slight premium to its peers, considering the company’s expanded scale and capacity, and modest outlook. For the valuation purpose, peers such as Beach Energy Ltd (ASX: BPT), Viva Energy Group Ltd (ASX: VEA), Origin Energy Ltd (ASX: ORG), etc., have been considered. Considering the stock’s decent returns in the past one-month, current trading level, indicative downside in valuation and uncertainties surrounding the COVID-19 pandemic, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $7.16 as on 31 January 2022, 3:30 PM (GMT+10), Sydney, Eastern Australia.

STO Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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