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Santos (STO) $7.41 /Woodside Energy (WDS) $32.46

STO -5.84% / WDS +0.53%: Stocks entered a trading halt this morning with the announcement that they’ve called off any potential merger talks because there was no clear value creation on offer. WDS was seen as the buyer, and STO the seller, so STO had been the big beneficiary in terms of relative share prices in recent months. Santos management is grappling with what they call, consistent underappreciation by the market of the value in their business, although most companies feel the same way!

We’ve long held the view that STO have complicated and challenging assets, particularly those picked up through Oil Search, which in our view is why the market discounts them more heavily, and unlike the clear strategic rationale WDS could demonstrate when buying BHP’s petroleum business, this was always going to be a tougher ask.

  • WDS comes out of this looking better than STO, and the pressure remains on the latter to make something happen to create value, however, with their focus being on WDS through the latter part of last year, we don’t think STO is the way to play traditional energy in the short term.
MM prefers WDS over STO at current prices
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Woodside (WDS) vs Santos (STO)
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