Santos Ltd (ASX: STO) shares are getting hammered today.
Shares in the S&P/ASX 200 Index (ASX: XJO) energy stock closed yesterday trading for $7.65. In morning trade on Thursday, shares are changing hands for $6.80 apiece, down 11.1%.
For some context, the ASX 200 is down 0.9% at this same time.
As you're likely aware, today's big sell-off in Santos shares is being spurred by the shock collapse of the roughly $30 billion takeover offer lobbed by the XRG Consortium in June.
With just days left before the final decision was meant to be made, and with many analysts expecting the takeover to proceed, the Abu Dhabi led consortium threw in the towel on its US$5.62 per share (AU$8.46 per share at current exchange rates) bid.
We'll look at whether the ASX 200 energy stock now represents good value below.
But first…
Why did the takeover deal collapse?
As the Motley Fool's Cameron England reported this morning, the $30 billion deal ran into a number of snags. One of those was a commitment to supply the domestic Australian market with gas.
Following the collapse of the deal that's pressuring Santos shares this morning, the ASX 200 oil and gas company said:
The XRG Consortium would not agree to an appropriate allocation of risk between the XRG Consortium and Santos shareholders under the SIA [scheme implementation agreement]. This included the obligation of the XRG Consortium to secure regulatory approvals and the provision of a reasonable commitment to the development and supply of domestic gas.
Management said the company would continue to focus on its successful strategies. The company also noted that its growth project, the Barossa gas project in Australia and the Pikka phase 1 oil project in Alaska, are well-advanced and materially de-risked.
Which brings us back to our headline question.
Down 11% are Santos shares a good buy today?
Following the collapse of the $30 billion takeover deal today, Jarden downgraded Santos stock to an underweight rating from its previous overweight rating.
According to the broker (quoted by The Australian Financial Review):
While Santos had been trading at a significant discount (closing price on September 17 was $7.65), our underlying value of the company at US$70 per barrel. Brent is $7.05 (or $6.39, at US$65 per barrel).
We expect the market will take time to digest this news and refocus on Santos remaining on the ASX, with shareholders asking management 'What went wrong?' and 'Where to from here?'
Jarden's new price target of $7.05 for Santos shares is down from its previous target of $8.40 a share.
And while that's a sizeable downgrade, it still represents a potential upside of almost 4% from current levels, not inclusive of any upcoming Santos dividends. The stock trades at a partly franked trailing dividend yield of 5.4%.
