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Santos H1 FY19 Result – Strong Result

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

Santos (ASX: STO) is an Australian petroleum company. The four main natural gas assets that Santos has an interest in are located the Copper Basin, Queensland, Papua New Guinea, Northern Australia and Western Australia. Santos has a market capitalisation of A$14.3 billion.

Santos FY19 Results

What are the results from Santos FY19?

Today (Thursday 22 August 2019) Santos released its H1 FY19 results. The main points are as follows:

  • Revenue from ordinary activates for HY19 is US$1,974 million, up 17.5 per cent from HY18.
  • Underlying profit for HY19 is US$411 million, up 89 per cent from HY18.
  • Basic profit per share for HY19 is 18.7 US cents, up 274 per cent from HY18.
  • Interim dividend for HY19 is 6.0 US cents, up 71 per cent from HY18.

Specific results on company operations are as follows:

  • Total production for HY19 is 37.0 mmboe, up 32 per cent from HY18.
  • Production at Copper Basin for HY19 is 7.7 mmboe, up 2.6 per cent from HY18.
  • Production at Queensland and NSW for HY19 is 6.3 mmboe, up 6.7 per cent from HY18.
  • Production at PNG for H1 FY19 is 6.4 mmboe, up 39 per cent from HY18.
  • Production at Northern Australia for HY19 is 1.6 mmboe, down 5.8 per cent from FY18.
  • Production at Western Australia for HY19 is 14.9 mmboe, up 166 per cent from HY18.

 

What were the drivers of this result?

The largest driver of the increase in production and revenue for Santos was the strong performance in Western Australia. The 166 per cent increase in production is mainly attributed to the acquisition of Quadrant in the second half of 2018.

The strong result in PNG is attributed to a recovery from the PNG highlands earthquake in February 2018. Also, the LNG plant near Port Moresby has two LNG trains with the combined capacity to produce more than eight million tonnes per annum.  Production from both trains commenced in 2014, which added to the positive result.

The final driver of Santos positive result was the higher than average price of liquefied natural gas (LNG) for FY19. The average realised LNG price rose 11 per cent to US$9.97/mmBtu, which made a significant contribution to the growth in Santos’ revenue for HY19.

 

What is the outlook for Santos?

The global economy grew by around 3¾ per cent in 2018. It is expected that global growth should slow and be in the range of 3¼ - 3¾ per cent in 2019. The continued proliferation of trade protectionism amongst the largest world economies creates further economic and political uncertainly moving into FY20. This policy of trade protectionism could ease demand for energy within the major economies.

Santos management noted:

Sales volume guidance for FY19 is maintained in the range of 90 to 97 mmboe and production guidance is maintained in the range of 73 to 77 mmboe for 2019.

 

 

What is the market reaction?

The initial market reaction to Santos HY19 is positive. Santos share price is up around 4.5 per cent and is currently trading at around A$7.16 (10.30am, 22 August). Santos trades on a P/E ratio in the mid-teens and an annual dividend yield of around 2 per cent (fully franked).

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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