Australia | Jul 28 2006
By Chris Shaw
Santos (STO) has been far from a favourite among Australian oil and gas analysts for some time, but following the company’s latest quarterly report there is evidence that support for the company is growing.
Both Macquarie and JP Morgan have upgraded previously negative recommendations to Neutral, as following recent weakness the stock now appears better value compared to its peers, while most brokers have also made minor increases to earnings estimates for both this year and future years.
As Citigroup notes, the increase in production from the company’s operations in the Carnarvon Basin will provide a boost to earnings, while sentiment regarding the Cooper oil optimisation program continues to improve as the company builds on the string of successful wells it has drilled in the region this year.
UBS sees group production increasing from a forecast 62.8mmboe this year to as much as 75.8mmboe next year, which has led it to lift its 2007 earnings per share forecast by 5% to $1.35 and in 2008 by 3.4% to $1.00. Citigroup is even more positive with its forecasts, predicting earnings per share of $1.48 in 2007 and $1.44 in 2008.
Macquarie also estimates the company’s exploration success in Vietnam could prove quite value accretive, suggesting it could add as much as $0.30-$0.40 to its valuation. Citigroup is also positive on the potential of the region, but expects the company to be conservative given the market’s negative reaction when the Jeruk discovery proved to be less valuable than initially thought.
The FN Arena database shows the company scores two Buy ratings and eight Hold recommendations, with an average price target of $12.24. This compares to a median price target of $12.37 according to Thomson One Analytics, which also shows median earnings per share estimates for the stock are $1.29 this year, $1.19 in 2007 and $0.91 in 2008.
Santos shares have traded higher today, as at 1.15pm the stock was up 13c to $11.55.