Santos share price gains 4.9% on record 1H19 profit results

Santos posted incredibly positive results when it released its 2019 half-year report yesterday, with profits, cash flow and dividends all rising.

Higher LNG prices helped Santos Ltd (ASX: STO) post bumper top and bottom-line figures in its 2019 half-year report, released to the market yesterday.

Here, Santos reported strong upticks across all key financial metrics, as revenue, earnings and dividends all rose.

Investors seem to have been anticipating strong earnings in the lead-up to yesterday’s report, with Santos’s share price rising from A$6.65 per share on Monday, to A$7.21 per share on Friday, 10:48 AEST.

Production and sales volume bounce

Speaking of these results, Santos's CEO Kevin Gallagher said that yesterday’s 1H19 announcement:

‘Demonstrates the strength of our cash-generative operating model and the successful integration of the Quadrant acquisition.'

Tellingly, it was this acquisition, finalised late last year; as well as production resuming at the company’s PNG LNG site, that contributed to strong increases in production and sales volumes during the first-half.

Here, Santos’s production climbed to 37.0MMboe, while sales volume reached 45.2MMboe – a 37% and 18% increase year-over-year, respectively.

The company’s total revenues also came in higher, at $2,043 million – a sizable 18% increase from 1H18 – as LNG prices experienced robust gains and volumes increased.

Shareholders get a boost

These impressive top-line figures translated into even better bottom-line results. Consequently, a sizable uptick in Santos Ltd’s interim dividend was also announced.

All up, Santos’s (ASX: STO) underlying profit almost doubled in the first-half, hitting $411 million: up 89% from the corresponding period.

However, it’s likely that Santos’s net profits after tax (NPAT) will attract the most investor attention. Here the energy giant posted NPAT figures of $388 million – a massive 273% uplift, on a year-over-year basis.

Off the back of these results, Santos's CEO Kevin Gallagher announced that:

‘The Board has resolved to pay a 2019 interim dividend of US6.0 cents per share full-franked,’ which represents a 71% increase on the company’s 2018’s interim dividend.

Santos share price: the 2025 growth game

Ultimately, yesterday’s strong half-year results are underpinned by an ambitious long-term growth strategy.

The company is currently in the process of expanding its PNG LNG plant, has confirmed a significant gas discovery at Muruk-2 and just finished a successful '2C upgrade' at its Dorado-2 site in Western Australia.

Speaking of these projects, Santos Ltd's management has noted that:

'All of this growth activity is consistent with reaching our goal of more than 100 million barrels of oil equivalent production by 2025.'

Such growth, says the company's CEO will be underpinned by a world-class balance sheet, a strong asset portfolio and factors in the cyclical fluctuations of oil prices.

The analyst viewpoint: Santos going forward

In the wake of Santos’ 1H19 results, a new-wave of broker reports have begun to filter out.

Macquarie Wealth Management this morning, for example, placed an outperform rating on Santos, as well as a 12-month price target of A$8.17 per share on the energy giant.

Morgan Stanley took a similarly bullish stance today, slapping the company with an overweight rating and putting a 12-month price target of A$8.00 on the stock.

By comparison, Citibank took a slightly more reserved view, placing a neutral rating on the stock and increasing their price target by some 6% to A$7.10. Citibank noted that Santos currently faces no true growth impediments, though the synergies from the Quadrant acquisition was lower than the bank expected.

These positive views are hardly surprising when you consider that the Santos Ltd (ASX: STO) share price has now substantially outperformed the ASX 200 benchmark year-to-date, rising over 34% in that period.

Santos’s shares have now gained 4.9% following yesterday's 1H19 release.


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