Australian Equities Income Portfolio
We have added to our existing position in Santos (STO) following the company’s Investor Day, with the share price having underperformed the market by -12.7% over the past month.
STO is investigating structural alternatives to create value for shareholders. Although no plans have been finalised, structural separation at business and asset level is underway, which will enable STO unlock value through asset sales, partnerships or a demerger. Activist investors have urged STO to separate its highly rated LNG assets from the other assets to achieve a higher valuation for the group, but it remains to be seen if the company will adopt such a strategy.
STO has a court hearing commencing 4 December on pipelay activities for its Barossa project, an offshore gas project to backfill its existing Darwin LNG plant. This has been an overhang on the share price as the court decision could delay commencement of production from Barossa, currently scheduled for 1H 2025. The project is currently 64% complete.
STO is now trading on a forward 12m dividend yield of ~4.5% and Price to Earnings Ratio of 9.6X versus its 5-year average of 11.9X.