Santos: Development Projects Progressing Well

Our AUD 12.30 fair value estimate for no-moat Santos stands. We see limited longer-term valuation implications in Australia’s second-largest oil and gas producer reporting slightly lower-than-expected fourth-quarter 2023 production, offset by higher-than-anticipated average pricing. Our 2023 EPS forecast rises marginally to AUD 0.68, and our DPS forecast is unchanged at AUD 0.26. The dividend equates to a moderate and only part-franked 3.4% yield at the current share price, Santos preferring to supplement a comparatively low about 40% payout ratio with share buybacks. This makes perfect sense while the shares remain at such a steep discount to our fair value estimate. The share count has fallen by about 4% since the first quarter of 2022.