Recently posted by Credit Suisse
It was worth -13c AUD
now $5 AUD
Go figure
Rating OUTPERFORM [V]
Price (22-Jan,A$) 2.79
Target Price (A$) 5.00
Target price ESG risk (%) 0.0
Market cap (A$mn) 4,926.2
Yr avg. mthly trading (A$mn) 1,037.0
Projected return:
Capital gain (%) 79.2
Dividend yield (net %) 3.1
Total return (%) 82.3
Waiting for FY16 guidance
■ Not too many surprises in the numbers: 4Q15 production came in at
14.9mmboe (CS 51mmboe). The market may take capex being ~$150mn
under budget in CY15 as positive and, while in isolation it is, we remain
cognisant that capex cuts rarely come without a future impact on production.
■ No guidance given for 2016: While we have often been given guidance for
the following year at the November investor days, Santos is waiting for
February results for 2016 guidance. At this stage we will also get clarity on
the magnitude of impairments and reserve downgrades. While impairments
shouldn't be ignored (they highlight the sins of the past), reserves will be a
far greater focus for us. We have cut earnings materially on lower revenue
reported vs our forecasts for CY15 with <10% flow on impacts in outer years.
■ Soritos E&P clearly the way forward in our minds. Since we wrote our
note last week, on our view that Santos and Origin should merge, we have
been encouraged by the almost universal support from the investment
community on the industrial logic for a deal. Most remain concerned that
corporate 'culture' will get in the way; this is something the corporates can
control themselves though.
■ Still all about oil for now. In the absence of Soritos E&P, or other M&A
activity, Santos' share price remains firmly in the hands of the oil price. On
our numbers, Santos is currently pricing in a ~US$55/bbl oil price to
perpetuity. Markets are surprisingly adept at both ends of a cycle of forgetting
that cyclical commodities have a funny habit of being cyclical. To this extent
the stock still looks compelling, if highly risky, to us – with huge self help
potential in creating Soritos E&P.
