Santos shares rebound as analysts cheer gas deal Matt Chambers...

Santos shares rebound as analysts cheer gas deal

Matt Chambers
From: The Australian
July 20, 2011 12:00AM

SANTOS shares rebounded yesterday as analysts gave a general tick of approval for the company's $730 million friendly scrip bid for the 80 per cent of NSW coal-seam gas play Eastern Star Gas it doesn't yet own.

Apart from the odd valuation downgrade, analysts at major investment banks said the long-expected bid from Santos was a good one that provided the Adelaide company with options to supply either domestic markets or export markets through its Gladstone Liquefied Natural Gas project.

But analysts were not confident the positives of the deal, announced on Monday, to quickly flow to Santos's share price.

Credit Suisse analyst Sandra McCullagh said investors might take a long time to warm to the deal, despite its medium-to-long-term benefits.

"We believe the ESG transaction represents one of the better deals undertaken in recent years," Ms McCullagh said.

"It reduces the risk on GLNG reserve coverage, removes a potential competitive threat in the domestic market, provides a pathway to increased supply into gas-fired power generation and increases domestic gas supply against a backdrop of forecast increasing gas prices."

Credit Suisse still dropped its Santos target price from $17.85 to to $17.60 because of the dilutive effect of the deal. Yesterday, Santos shares rose 37c, or 3 per cent, to $13.11, valuing the deal, which gives Eastern Star shareholders one Santos share for every 14.7 Eastern Star shares they own, at 89c a share.

Eastern Star shares rose 3.5c, or 4 per cent, to 87.5c. The deal is scheduled to go before Eastern Star shareholders in October.

UBS cut its Santos valuation by 4 per cent to $15.78 a share.

Goldman Sachs analyst Mark Wiseman said the value of the deal seemed reasonable if LNG exports (from Gladstone) proved viable.

http://www.theaustralian.com.au/business/mining-energy/santos-shares-rebound-as-analysts-cheer-gas-deal/story-e6frg9df-1226097868176