From Credit Suisse:
■ Balance sheet fixed, but little headroom for growth. The scale of the raising and the ~35% discount should come as no surprise. Hony’s placement is a 15% premium to the previous close, but post take up of their entitlement an average entry price of ~$5.71/sh (10% premium to $5.15/sh TERP) – that said raising capital at any premium is a great result. Kipper’s $520mn is below our ~$700mn valuation. On our numbers FFO/debt now sits at 34% in FY17 and net debt/EBITDA at 2.3x. If Santos lowered its oil deck US$15/bbl, which would still be above the futures curve, we estimate the guided ~A$3bn post-tax impairment would see gearing of >45% in F16. Whilst credit rating fears are gone, in our view, little headroom exists for growth.
■ New strategy hopefully set by the new CEO. We hear unequivocally positive things about the new CEO, Kevin Gallagher. We look forward to hearing his vision for Santos going forward. A platform has at least been set where balance sheet concerns, certainly if the strategy is to hunker down, seem to have been removed.
■ Time to wait and see how the dust settles. A la Origin, post the raising, Santos remains highly leveraged even if the credit rating is no longer at risk. Our new NPV falls to $5/sh. We do note, with some caution, that we now carry A$0.81/sh for growth assets (having removed the extra risking on growth assets for lack of funding) and A$4.20/sh for GLNG, where we remain concerned about gas supply into the future (even more so with capex reduced). The business is more investable post raising, but we are happy to see where the dust settles and what the new CEO wants to do with the business. NEUTRAL retained.
Yes, the threat of imminent death has been removed. But balance sheet fixed, I think not. Not unless you only look at liabilites. What about grossly inflated assets, like GLNG?
It remains a troubled play on oil though as even if it rises it will still have to deal with the forthcoming breaking of the LNG contract market and its large write downs.
Let’s see what price it returns at.
