No-Moat Santos Delivers Record First-Half 2022 Earnings Result; Our FVE Is Increased to AUD 11.30

We increase our fair value estimate for no-moat Santos by 4% to AUD 11.30. Australia’s second-largest oil and gas producer reported a sizzling 300% increase in underlying first-half 2022 NPAT to USD 1.27 billion, well ahead of our USD 836 million forecast. EBITDA margin excluding third-party product sales improved to 80% from 74%, somewhat ahead of our 78% expectation. But the margin on third-party sales was well ahead of our expectation and the most significant driver of our profit underestimation. Margin on third-party sales improved to around 50% from historical levels nearer 30%. We expect this is a quirk of current gas market ructions, and we maintain our 40% third-party margin assumption longer term.