Here’s what makes Santos shares ‘a really exciting proposition’: expert

Could the Santos share price keep climbing?

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Key points

  • The Santos share price has surged 27% year to date 
  • Santos shares have climbed nearly 3% in a week 
  • One analyst believes shareholders can expect greater returns in the future 

An analyst has expressed an optimistic outlook for the shares of energy producer Santos.

The Santos share price climbed 2.69% in a week, from $7.80 on 26 April to the current price of $8.01.

Let’s take a look at why one expert recommends Santos.

What’s the outlook for Santos shares

Santos is an “exciting proposition”, Firetrail Investments portfolio manager Blake Henricks believes.

Speaking to Livewire, Henricks outlined how the company’s disciplined approach to capital could help the Santos share price. He outlined how the free cash flow break-even price of oil for Santos was previously close to $60 a barrel, but is now about $25. He said:

Now, one of the challenges I think of Santos, if we go back a year ago, because of all this capital expediture (CAPEX) they were spending, the break-even was probably close to $60 a barrel.

And so it looked like they weren’t going to generate much free cash flow. Subsequent to that, they have taken over Oil Search at a very good point in the cycle. And now what they’re undergoing or undertaking is an attempt to sell down some assets.

Santos reported record oil production and sales revenue of US$1.9 billion in quarterly results released in April. This was 25% higher than the previous quarter.

Free cash flow increased 186% on the previous corresponding period to US$865 million.

Henricks emphasised Santos’ asset sell-off could be positive for company shareholders. He added:

If they are successful in that, we expect very high shareholder returns for the medium term for Santos shareholders. And that’s what makes it a really exciting proposition.

Santos completed the merger with Oil Search in late 2021.

Santos share price snapshot

The Santos share price has gained 15% in the past 12 months while it has surged nearly 27% in the year to date.

In comparison, S&P/ASX 200 Index (ASX: XJO) has returned less than 5% in the past year.

Santos has a market capitalisation of about $27 billion based on the current share price.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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