Santos Share Price Down, but Results Reveal Strong Cash Flow
At time of writing, the share price of Santos Limited [ASX:STO] is down 0.86%, trading at $6.88.
It has been a solid 12-month period for the stock:
The latest news out of the company is its full-year results, which reveal improved cash flow and growth in reserves.
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Santos share price falls as investors demand more
There were a number of highlights to be drawn from the full-year results which include:
- Record free cash flow of $1.006 billion, up 63%
- Record underlying NPAT (net profit after tax) of $727 million, up 129%
- Record EBITDAX (Earnings before Interest, Taxes, Depreciation, Amortization and Exploration Expense) of $2.16 billion, up 51%
- Proved and Probable reserves of 1,022 mmboe, raising the reserve replacement ratio by 395%
- A dividend of 6.2 US cents
The company is now targeting growth in production across its five core assets, as seen below:
Source: Santos Limited
One interesting counterpoint to the positive story for the stock is that it expects to reduce its gearing ratio from 33% to less than 30% by the end of 2019.
The company bases this on a $65 per barrel oil price in 2019.
This may be a tad optimistic in light of slowing global growth.
What’s ahead for the Santos share price?
With operations in natural gas and oil, the company’s future is closely tied to the outlook for energy prices.
It is worth noting that there is significant growth projected in LNG demand, particularly in the Asia-Pacific region, as seen in the graph:
Source: Woodside Petroleum Limited
In this sense, Santos is well positioned long-term.
That being said however, there is an element of uncertainty around oil prices. They could cut one of two ways depending on whether global growth does eventually slow down in 2019.
Also in the mix is the prospect of a worsening trade war. The share prices of Santos Limited [ASX:STO], Woodside Petroleum Limited [ASX:WPL] and Beach Energy Limited [ASX:BPT], have been hit in the past when negative news comes out.
As a result, it may be wise for shareholders to consider their investment horizon when looking at these stocks.
For Money Morning