L1 Capital says the market has failed to properly value Santos’ LNG assets.
The $25 billion energy giant Santos could be worth almost 40 per cent more if it splits its prized liquefied natural gas assets into a separate company, according to Melbourne-based fund manager L1 Capital, which has urged the Santos board to consider a break-up.
Hawkins says that in the past two years, Santos has delivered total shareholder returns of just 11 per cent, while Woodside and an index of global peers, including Chevron, Shell, ExxonMobil, BP and ConocoPhillips, have delivered 70 per cent.While Santos’ EBITDA is expected to grow 22 per cent between 2024 and 2027, it is trading on an enterprise multiple of just 4.2 times. This is materially lower than Exxon, Chevron and ConocoPhillips, which are trading at 5.7 times, 6.2 times and 6.
“It is clear to us that the LNG assets are not being valued sufficiently in Santos’ current form, and we believe they could be worth more than the entire current market cap of Santos.”A Santos spokesman said: “Santos welcomes feedback from investors and regularly reviews opportunities to create shareholder value.”
“A separated LNG business would become a leading listed LNG pure-play exposure, with long-life assets, clear growth agenda, and growing exposure to the spot market, highly sought after by investors given continuously increasing LNG demand,” he says. Cleary is supportive of a formal strategic review process, and suggests that separating the LNG assets and conventional gas assets may be just one option. Separating Santos’ carbon-producing assets and its decarbonisation projects may be another approach, while splitting its domestic and international assets could also be worthy of consideration.
However, there is no question that the bulk of Santos’ valuation rests with the LNG business. Firetrail Investments’ portfolio manager Blake Henricks backed L1’s view that the LNG assets are the most valuable part of the group.
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