Santos Ltd (ASX: STO) shares have been in focus in recent weeks.
Thanks to the receipt of a takeover approach, the energy giant's shares are up 18% since this time last month.
As a comparison, Beach Energy Ltd (ASX: BPT) shares are largely flat over the same period.
But if you thought the gains were over, you might be wrong according to analysts at Macquarie Group Ltd (ASX: MQG).
Let's see what the broker is saying about Santos and its shares.
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What is the broker saying?
Macquarie notes that Santos has released an update on its proposed takeover by the XRG consortium, revealing that it has granted due diligence. It said:
STO granted the XRG consortium (ADNOC/Carlyle) a six-week exclusive due diligence period (eg, ending 5pm on 8 August), with an ability for exclusivity to lapse after four weeks in the event of a superior proposal emerging (eg, Friday, 25 July).
Macquarie isn't convinced that a superior proposal will materialise. Though, it isn't ruling it out. It adds:
Competing proposal? EIG may have a wildcard – A return seems unlikely given the time that has passed (since the 2018 Harbour proposal) but can't be ruled out, in our view. EIG (MidOcean, which has some degree of Saudi backing) acquired Tokyo Gas' minor equity stakes in several Australia LNG projects in 2024 (Gorgon, Pluto, QCLNG).
Woodside seems unlikely to return – whilst it would have a simpler path to FIRB approval and has done preliminary due diligence, we simply don't expect the scrip ratio could work (it has blown out from ~0.30 to what would now need to be ~0.40).
The broker appears to believe that it won't be particularly hard for the XRG Consortium to get FIRB approval. It explains:
We expect the most desirable assets to ADNOC are the LNG assets, and these are likely to be less sensitive to the national interest than domestic gas assets that could be divested and we expect are less significant to the deal (eg, Varanus Island, Cooper Basin, Narrabri).
In light of this, the broker has reaffirmed its outperform rating and $8.85 price target on Santos shares. Based on its current share price of $7.66, this implies potential upside of almost 16% for investors. Macquarie concludes:
Maintain Outperform. We continue to see upside to the XRG/Carlyle consortium offer and expect investors should earn a good portion of the 14% remaining return through the due diligence phase.
