Is the Santos share price a buy following the company’s monster profit?

The Santos Ltd (ASX: STO) share price is up more than 2% so far on Tuesday.

The S&P/ASX 200 Index (ASX: XJO) energy giant is currently trading for $7.55 per share.

Santos shares are now up 9% since the company released its half-year results on 17 August.

And what results they were!

Santos reported revenues of US$3.77 billion, an 85% leap over the prior corresponding period. Underlying net profit after tax (NPAT) leapt 300% to US$1.27 billion. And management declared an interim dividend of 7.6 US cents, up 38%.

So, following on those monster profits, is the Santos share price a buy?

Strong earnings, cash flow and dividends

For some insight into that question, we defer to Michael Slack, head of research at Martin Currie.

Asked by Livewire whether the Santos share price was a buy on the back of those strong results, Slack said it was a definitive buy.

According to Slack:

We see over 20% valuation upside in this stock, as Santos’ strong cashflow generation comes to fruition and the growth projects get appreciated by the market. So, any form of weakness is a good opportunity to take advantage of.

Slack has a bullish outlook for the Santos share price and the broader energy sector in the 2023 financial year.

The outlook is “very strong, particularly for LNG,” he said.

Slack added:

Europe is displacing 100 million tonnes of Russian pipeline gas into the EU, with LNG. That’s 25% of the existing supply and you can’t just turn on LNG supply overnight. So LNG prices in particular are likely to be strongly supported for a long period until you get mobilisation of new capacity. And that could take 4-5 years.

Santos itself is 70% gas revenue and is a low-cost producer. Very strong earnings, very strong cash flow to fund investments, and more dividends and returns to shareholders.

Slack noted that one obvious risk is the oil price.

“However, the oil market is structurally undersupplied, hasn’t been invested in for many years, and is struggling to keep up with the demand that is still impacted by COVID,” he said.

“We would say that the fundamentals of the oil market are still strong and will remain strong. The fundamentals of the gas market are even stronger.”

Santos share price snapshot

The Santos share price is up 14% so far in 2022. That compares to a year-to-date loss of 8% posted by the ASX 200.

The post Is the Santos share price a buy following the company’s monster profit? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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