STO share price in focus
Santos Ltd, founded in the 1950s, is one of Australia’s largest oil and gas companies. The company owns and operates an extensive portfolio of oil and gas fields, supported by a network of pipelines and complementary facilities.
Initially established as an exploration-focused business, its name is an acronym for South Australia Northern Territory Oil Search.
In recent years, Santos has faced criticism and legal challenges regarding its climate action targets, with the ACCR accusing the company of greenwashing. Santos has committed to achieving net-zero Scope 1 and 2 emissions by 2040, but this target excludes Scope 3 emissions—those generated by the use of its products—which account for over 75% of the company’s total emissions.
WES shares
Founded in 1914, Wesfarmers is a diversified Australian conglomerate headquartered in Perth. Its operations span retail, chemical, fertiliser, industrial and safety brands and products across Australia and New Zealand.
Wesfarmers is often compared to a publicly listed private equity firm. It has a long history of buying businesses, leveraging their cash flow, re-investing in growth and eventually selling them for a premium. A notable example of this is Coles Group, which it bought in 2007 and spun out in 2018. However, by far (over 50%) of the company’s operating profit comes from Bunnings, the #1 hardware and home improvement business in Australia. Wesfarmers began buying parcels in Bunnings in 1987, eventually acquiring the final 52% in 1994 for $594 million.
Wesfarmers has long been considered a leading blue chip stock on the ASX and is known for paying a consistent dividend. Other well-known brands under the Wesfarmers umbrella include Blackwoods, Kmart, Target, Officeworks, and Priceline Pharmacy.
STO & WES share price valuation
We would consider STO to be a ‘mature’ or ‘blue-chip’ business, so some of the metrics that could be worth considering include the debt/equity ratio, average yield, and return on equity, or ROE. These measures give us a sense of the company’s debt levels, their ability to generate returns from their assets, and their ability to consistently return profits to shareholders.
For CY24, Santos Ltd reported a debt/equity ratio of 43.0%, meaning the company has more equity than debt.
Over the last 5 years, STO has delivered an average dividend yield of 4.6% per year. This is important to note if you’re looking for income from your investments.
Finally, in CY24, STO reported an ROE of 8.2%. For a mature business you generally want to see an ROE of more than 10%, so STO’s returns are a bit less than what we’d expect.
As for Wesfarmers Ltd, they reported a debt/equity ratio of 131.4% in FY24, meaning the company is leveraged.
Since 2019 WES has achieved an average dividend yield of 3.4% per year, and in FY24 reported an ROE of 30.3%
Keep in mind that these are only a small selection of metrics. We don’t have enough information to value the business or make an investment decision. To learn more about valuation, check out one of our free online investing courses.
