Afternoon Report / Will Santos bid for Oil Search? (OSH, STO, NEA)

By Market Matters 12 July 19

Will Santos bid for Oil Search? (OSH, STO, NEA)

Market Matters Afternoon Report 12th July 2019

WHAT MATTERED TODAY

Another day where the market ebbed and flowed in a reasonable range, typical of a low volume ‘school holiday’ sort of session. Not a lot happening across the desk today in terms of volumes however there was a couple of interesting stock moves that played out. We covered Energy / Oil prices in the AM report today highlighting that crude oil prices bottomed in mid-June and Wednesday’s sharp 4.3% kick higher is a reasonably bullish sign, not only for oil but also for bond yields. Historically when crude oil rises US bond yields follow suit although there’s usually a lag while investors take their time to become convinced that oils rally is real / sustainable.

Oil Search (OSH) +3.5% was one of those stocks in focus today on reports that Santos (STO) could be considering a takeover bid for the company. No sources were really given and both companies denied the rumors however it makes sense given the relative outperformance of STO v OSH over the past 12 months - if it’s a scrip deal. Oil Search has been hit by political uncertainty in Papua New Guinea, where the bulk of its operations are, and the expected departure of its long-standing Managing Director Peter Botten while STO is looking for growth opportunities. OSH is capped at$11bn, STO at $14bn while WPL remains dominant at $34bn

Oil Search (OSH) v Santos (STO)

Aerial mapping business NearMap (NEA) was also one of the movers today down by ~9% at the close however they traded in a big ~15% trading range. They were out with some prelimiary numbers that hit the high notes on first read through however they were clearly helped by a depreciating AUD which juiced up their growth numbers. A stock on a huge mutiple, and management clearly conscious of delivering big growth to justify it,  but the underlying numbers today weren’t as upbeat as the headlines imply  + they also changed accounting standards to throw more complexity into the mix. It’s obviosly been a wionderful  performer however this is the type of stock we’re avoiding at this jucture.

Nearmap (NEA) Chart

Overall today, the ASX 200 closed down -19pts or -0.29% at 6696. Dow Futures are trading up +89 points or 0.33%

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE:

Sectors this week:

Stocks this week: 

Broker Moves;

·         BHP Group PLC Upgraded to Neutral at JPMorgan; PT 20.70 Pounds

·         Santos Upgraded to Outperform at Macquarie; PT A$8.20

·         G8 Education Downgraded to Hold at Canaccord; PT A$2.80

·         Newcrest Downgraded to Hold at Shaw and Partners; PT A$28.70

·         Evolution Downgraded to Hold at Shaw and Partners; PT A$3.90

OUR CALLS

No changes today across the portfolios.

Watch out for the weekend report. Have a great night,

James, Harry & the Market Matters Team

Disclosure

Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.

Disclaimer

All figures contained from sources believed to be accurate.  Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy.  Prices as at 12/07/2019

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