STO has lagged WDS gaining just 25% compared to WDS’s +40%, with the stock struggling to fully recover from an Abu Dhabi-led consortium walking away from a takeover deal last September. Similar to WDS, we would consider STO into weakness, ideally below $7.50, only 3-5% lower, but there’s no hurry yet. Note, we don’t anticipate STO slipping as much because Woodside has the highest leverage to changes in oil & LNG prices.
Santos and Woodside are meaningfully different animals despite both sitting in the ASX200 Energy sector. Woodside is more oil-price exposed; roughly 60% of its portfolio is oil-linked. Santos is predominantly a gas and LNG business, making it more sensitive to LNG spot prices and long-term contract pricing than to the daily crude oil moves that dominate financial headlines. When the Middle East drives oil higher, Woodside typically gets the bigger direct kick; Santos benefits too, but the transmission mechanism is different. Santos, as a predominantly gas and LNG business, has seen a tailwind from the war, as Hormuz disruptions have tightened Asian LNG markets, but the magnitude is nowhere near what oil-heavy Woodside has captured.
- We can see STO eventually testing its 2022 high, but the risk/reward isn’t exciting close to the $8 area.
MM is neutral towards STO around $7.75
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