Financial Analysis of Santos Limited: Comparative Analysis with Woodside Petroleum

This report performs a financial analysis of Santos Limited, an oil and gas company from Australia, and compares it with Woodside Petroleum. It includes industry outlook, COVID-19 impact, share price performance, financial performance, key trend analysis, DuPont framework analysis, sustainable growth rate, cash conversion cycle, and other key ratios.

Accounting for managers
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Executive Summary
This report aims to perform financial analysis of Santos Limited. It is an oil and gas
company from Australia and operates in Asia-Pacific. In order to understand the company
performance better, a comparative analysis has been drawn with its competitor Woodside
Petroleum Ltd which is a fellow Australian company operating in oil and gas industry. In the
report, industry outlook has been taken to determine the impact over the companies due to
COVID-19. Further, performance of the two companies has been evaluated for the five years to
understand the trends in its performance and operations.
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Table of Contents
Executive Summary.........................................................................................................................2
About Santos....................................................................................................................................4
Competition Benchmark..................................................................................................................4
Industry Overview and Outlook.......................................................................................................5
COVID-19 Impact to Santos............................................................................................................6
Share Price Performance..................................................................................................................7
Financial Performance.....................................................................................................................8
Key Trend Analysis....................................................................................................................8
DuPont Framework Analysis......................................................................................................9
Sustainable Growth Rate...........................................................................................................10
Cash Conversion Cycle.............................................................................................................10
Other Key Ratios.......................................................................................................................11
Overall Santos Financial Performance......................................................................................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................13
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About Santos
South Australia Northern Territory Oil Search also known as Santos Limited is an
Australian energy company. It is engaged exploring, extracting and supplying oil and gas to
households and industries across all Australia and various other regions of Asia Pacific. It was
incorporated in the year 1954 and is headquartered at Adelaide, South Australia. It has a
disciplined low-cost operating model which has helped it earn title of being resilient throughout
commodity price cycle. It is touted as one of Australia's biggest domestic gas suppliers and has
aimed to achieve net zero emissions by 2040 (About Santos, 2020).
Competition Benchmark
Santos is engaged in energy business. In Australia, other than Santos, biggest companies
in the oil and petroleum business are Woodside Petroleum Ltd, Chevron Australia Holdings Pty
Ltd, BHP Group Limited, ExxonMobil Australia Pty Ltd and Shell Energy Holdings Australia
Limited. Out of the all, Woodside Petroleum Ltd is taken as competiton benchmark as it was also
incorporated in year 1954 and is a fellow Australia incorporated company. It is headquartered at
Perth, West Australia and has a target of achieving net zero emissions by 2050 (Woodside
Annual Report, 2020). It has larger production than Santos.
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Illustration 1: 2020 Results Santos Ltd, 2020 Source: Annual Report 2020

Industry Overview and Outlook
Both the companies are in oil and petroleum business in Australia. It is a very large
industry which includes activities like mining crude oil, coal seem manufacturing, production of
Liquefied Natural Gas (LNG), Liquid petroleum Gas (LPG), oil shale, petroleum gas extraction,
etc. This industry is characterised by some large companies which are strong on performance and
has been able to retain stable credit ratings. This create an artificial barrier for the new entrants to
enter, survive and succeed in the market. However, this also results in weakness for the
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Illustration 2: Woodstock Operational Highlights, 2020 Source: Annual
Report, 2020
Illustration 3: Santos
Financial Overview, 2020
Source: Annual Report,
2020

companies in the industry as they had to face tough competition from strong rivals and require
high capital investment every time to maintain their market. Companies therefore need to search
for growth opportunities in outer unexplored market as well as have to develop new forms of
energy such as LNG to maintain their competitive advantage. While exploring such
opportunities, they are faced by the threat of the fluctuation in exchange prices and regulatory
risks in foreign countries.
COVID-19 Impact to Santos
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Illustration 4: Woodside Performance Chart, 2021 Source: Marketindex.au

Year 2020 was marred by the negative impact laid down by the global pandemic
outbreak. World went into lock-down leading to supply of oil and gas overtaking demand of the
commodities. It resulted into falling of prices of oil globally and reduced bargaining power of the
company in the supplier market.
From the above charts, it can be seen that both the companies had been impacted by
COVID-19 in the year 2020. However, Santos Ltd. recovered first. It saw its lowest performance
in March only which was around 30% decline and since then took recovery steps promptly and
efforts were paid soon and company has been giving positive performance and reached a height
of almost 81% increment from last years' performance. On the Other hand, Woodside saw ups
and downs in its performance. It reached its lowest performance of around 20% in March, 2020
only and then improved to reach a height of 43.53% in January 2021. However, it saw decline in
middle of the year as well when it showed negative performance for 2 months - September and
October, 2020.
Share Price Performance
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Illustration 5: Santos Ltd. Performance Chart, 2021 Source:Marketindex.au

Above images present a picture of movement of share prices of the Woodside and Santos
in the last 5 years. It can be seen that share price of Santos Ltd. today is 7.34 AUD (on 13th
March 2021) while it was 3.86 AUD five years back on 11th March 2016. This shows that
company has shown positive performance in the comparative last five years' data. On the other
hand, Woodside is trading at 25.09 AUD today (on 13th March, 2021) while it was trading at
26.76 AUD five years back on 11th March 2016. This shows that company has shown negative
performance in the comparative last five year's data. Negative performance in 2020 can be owed
to pandemic induced impacts on global market and operational performance. In beginning of
2020, Woodside was trading at 34.77 AUD and saw lowest at 16.00 AUD in March, 2020. In
beginning of 2020, Santos was trading at 8.22 AUD and saw lowest at 2.75 AUD in March,
2020.
Financial Performance
Key Trend Analysis
1. Sales and production trend
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Illustration 6: Woodside Share Price performance - 5 years, 2021 Source: ASX
Illustration 7: Santos Share Price Performance - 5 years, 2021 Source: ASX

From the above figures, a trend can be analysed in the performance of two companies.
Santos has steadily grew its production which saw high surge in 2019. Sales trend line shows
increment and decrement in response to the global demand. Woodside, on the other hand, has
seen a proportionate change in its sales and production over the years which means that in case
of emergency or short-term additional demand, company is likely to miss the opportunity.
2. Income Statement trend
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It can be seen from above figures that revenue of Santos has seen regular increment
which has been equally reflecting in the trend line of net profit after tax. On the other hand,
revenue trend line of Woodside has been uneven and is declining in last years which has
manifested itself in larger extent to show a declining performance in its net profit after tax.
DuPont Framework Analysis
Dupont Analysis uses Return on Equity to assess financial performance of the company.
A five years comparative analysis of the performance of the company has been taken in the
figure above. It can be seen that Santos has been on gradual improvement from negative to
positive ROE and has since, maintain the performance. On the other hand, it can be seen that
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Woodside performance has always been positive. However, the company has seen decline in
performance in last year than its earlier brilliant performance. This shows that Santos has better
performance in last years which can be owed to its sound capital structure and operational
efficiency.
Sustainable Growth Rate
Sustainable Growth Rate is used to determine maximum growth in the rate that company
can achieve without having debt as a finance component. Santos has more debt in its capital
structure than Woodside. From the above table, it can be seen that actual growth rate of company
is higher than sustainable growth rate which could be owed to the debt component. Therefore, it
can be said that debt plays an important role in optimising growth structure of the company.
Cash Conversion Cycle
Cash conversion cycle refers to the time period that company takes to complete one
working capital cycle. It includes tracking inventory, trade receivables and trade payables to
ascertain cash cycle i.e. time taken by company to convert its inventory into cash. From the
above table, it can be seen that Santos has a better cash cycle of the two companies. Woodside
has a better inventory and trade receivables turnover but Santos has a better trade payables
turnover, with the help of which company has been able to deliver a much better cash conversion
cycle.
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Other Key Ratios
A. Gross Profit Margin
Gross Profit margin is used to assess efficiency of the manufacturing operations of the
company to turn sales revenue into profit. It can be seen from above table that Santos has an up
and down graph in its profit margin. Woodside on the other hand, has shown a declining trend in
its gross profit margin.
B. Current Ratio
Current Ratio assesses company's ability to finance its short-term liabilities from its
current assets. Current Ratio of 2:1 is considered ideal. It can be seen above that Santos has been
able to maintain current ratio of more than 1:1 but has a turbulent path. Woodside on the other
hand has shown tremendous improvement in its current ratio. However, a higher current ratio
cannot be necessarily considered to be a good performance indicator and can also be a reflection
of disproportionate change in current assets and current liabilities.
Overall Santos Financial Performance
It can be observed from above analysis that company has a promising financial growth
opportunities based on the stable performance it has been delivering in last five years. Although,
it has seen ups and downs due to various changes in global market, it has been to able to deliver
stable performance and therefore, has been trusted by investors even in its leaner period and
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during the global pandemic crisis of COVID-19 which reduced demand in the market and
disrupted supply.
Conclusion
Above report presents a comparative analysis on the financial performance of two
companies - Santos Limited and Woodside Petroleum Limited for a period of five years. Both
the company have been incorporated in the same year in Australia and has been direct
competition to each other in oil, gas and petroleum sector. In the above analysis, it was observed
that Woodside has a higher stock price and better market capitalisation than Santos Limited.
However, in terms of comparative analysis of the growth trends delivered in the performance
over the last five years, Santos Ltd has been able to deliver better performance than Woodside
Petroleum Ltd.
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References
Online
About Santos. 2020. [Online]. Available
through:<https://www.santos.com/wp-content/uploads/2021/02/2020-Annual-Report.pdf>
(Accessed on 13 March, 2021)
Woodside Annual Report, 2020. [Online]. Available
through:<https://files.woodside/docs/default-source/investor-documents/major-reports-(static-
pdfs)/2020-full-year-results-and-annual-report/2020-woodside-annual-report.pdf?
sfvrsn=11372a48_4> (Accessed on 13 March, 2021)
Santos Ltd. Performance Chart. 2021. [Online]. Available
through:<https://old.marketindex.com.au/asx/sto> (Accessed on 13 March, 2021)
Woodside Performance Chart. 2021. [Online]. Available
through:<https://old.marketindex.com.au/asx/wpl> (Accessed on 13 March, 2021)
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