Santos Limited (ASX:STO): Is Breakeven Near?

Santos Limited’s (ASX:STO): Santos Limited explores for, develops, produces, transports, and markets hydrocarbons for homes, businesses, and major industries in Australia and Asia. The AU$12.81b market-cap company announced a latest loss of -AU$360.00m on 31 December 2017 for its most recent financial year result. Many investors are wondering the rate at which STO will turn a profit, with the big question being “when will the company breakeven?” Below I will provide a high-level summary of the industry analysts’ expectations for STO.

Check out our latest analysis for Santos

STO is bordering on breakeven, according to Oil and Gas analysts. They anticipate the company to incur a final loss in 2017, before generating positive profits of AU$538.18m in 2018. Therefore, STO is expected to breakeven roughly a couple of months from now! In order to meet this breakeven date, I calculated the rate at which STO must grow year-on-year. It turns out an average annual growth rate of 52.93% is expected, which signals high confidence from analysts. Should the business grow at a slower rate, it will become profitable at a later date than expected.

ASX:STO Past Future Earnings June 23rd 18
ASX:STO Past Future Earnings June 23rd 18

I’m not going to go through company-specific developments for STO given that this is a high-level summary, though, keep in mind that typically an oil and gas business has lumpy cash flows which are contingent on the natural resource and stage at which the company is operating. This means, large upcoming growth rates are not abnormal as the company is beginning to reap the benefits of earlier investments.

Before I wrap up, there’s one issue worth mentioning. STO currently has a relatively high level of debt. Typically, debt shouldn’t exceed 40% of your equity, which in STO’s case is 55.14%. A higher level of debt requires more stringent capital management which increases the risk in investing in the loss-making company.

Next Steps:

There are too many aspects of STO to cover in one brief article, but the key fundamentals for the company can all be found in one place – STO’s company page on Simply Wall St. I’ve also put together a list of pertinent factors you should further examine:

  1. Valuation: What is STO worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether STO is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Santos’s board and the CEO’s back ground.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.