Santos plans to establish a stand-alone midstream business unit by the end of the year, aiming to unlock $800m-2.7bn in value by selling down a 25-49% interest to an investor.
UBS has analysis that shows Santos can increase the valuation of midstream business by including synthetic tolls on a broader asset mix and considers this a possible catalyst for value that is not yet in the price.
The broker does not expect material pressure on credit metrics over the next 12-24 months but some weakness could be sustained if oil prices decline to less than US$50/bbl.
UBS retains a Buy rating and $8.30 target.
Sector: Energy.
Target price is $8.30.Current Price is $7.25. Difference: $1.05 – (brackets indicate current price is over target). If STO meets the UBS target it will return approximately 13% (excluding dividends, fees and charges – negative figures indicate an expected loss).
