Saudi Arabia's decision to extend its 1 million barrel per day crude oil production cut is expected to amplify upward pressure on oil prices. Additionally, the rising demand from the electric power sector is poised to propel growth within the natural gas industry.
Against such a scenario, it could be wise to take a bullish stance on fundamentally sound oil stocks Sasol Limited (SSL), Koninklijke Vopak N.V. (VOPKY), and Santos Limited (SSLZY) to capitalize on the industry tailwinds. Before we dive into the fundamentals of these stocks, let us briefly examine the current landscape of the energy industry.
Saudi Arabia heavily depends on oil revenues to fund its ambitious large-scale economic diversification projects. However, the vulnerability of its economy to fluctuations in oil prices poses a significant risk.
To mitigate this risk and ensure higher oil prices, Saudi Arabia has chosen to extend its voluntary oil production cut of 1 million barrels per day until the year's end, as announced by the state-owned Saudi Press Agency. Moreover, Russia has also committed to reducing its oil exports by 300,000 barrels per day until December 2023.
Following the announcement of these prolonged cuts, October contracts for WTI surged to $86.75 per barrel, while November contracts for Brent reached $90.05 per barrel, marking the highest price levels for both in the past ten months.
Furthermore, given the declining inventories and constrained supply, especially as OPEC+ production approaches its lowest point in nearly two years, UBS predicts oil prices to rally beyond $90 per barrel by the year-end.
On the other hand, the expansion of the natural gas sector is driven by several factors, including heightened global economic activity, increased electricity consumption, and growing demand for refined petroleum in developing nations. Additionally, a projected rise in the use of natural gas in the electric power sector is set to be a significant driver of future growth in the industry.
The global natural gas market is projected to grow at a 7.3% CAGR and reach $1.03 trillion in 2023. Looking ahead, the market is expected to hit $1.37 trillion by 2027, exhibiting a CAGR of 7.5% spanning 2023 to 2027.
Considering the industry dynamics, let us now dive into the fundamentals of the three Foreign Oil & Gas stocks, beginning with number 3.
Stock #3: Sasol Limited (SSL)
Based in Johannesburg, South Africa, SSL operates as an integrated chemical and energy company. It offers alumina, such as battery materials, catalyst supports, abrasives and polishing, and polymer additives. In addition, the company explores, develops, produces, markets, and distributes natural oil and gas and associated products.
On September 6, SSL entered into a three-year partnership with Vertree Partners Limited, a global carbon solutions provider. Through this collaboration, Vertree will assist SSL in creating effective strategies for reducing carbon emissions, mitigating related risks, and making impactful investments in carbon reduction and removal initiatives as part of SSL’s commitment to achieving a net-zero carbon footprint.
On April 25, SSL joined forces with the Mission Possible Partnership (MPP) to assess prospective initiatives for SSL’s sustainability hub situated in Lake Charles, Louisiana.
Under this collaboration, MPP will offer guidance to SSL on potential projects encompassing hydrogen as an energy source, carbon capture, utilization, and storage, as well as the production of sustainable aviation fuel. The ultimate aim is to advance one or more of these projects to the final investment decision stage.
The stock’s trailing-12-month gross profit margin of 42.22% is 49.7% higher than the 28.21% industry average. Its trailing-12-month ROTC of 10.38% is 85.4% higher than the 5.60% industry average. Also, SSL’s trailing-12-month cash per share of $4.55 is 192.5% higher than the industry average of $1.55.
For the fiscal period, which ended on June 30, 2023, SSL’s turnover increased 6.2% year-over-year to R289.69 billion ($15.09 billion), while its EBIT came in at R21.52 billion ($1.12 billion). During the same period, the company’s earnings for the year amounted to R9.33 billion ($520.26 million).
Also, its cash and cash equivalents stood at R53.93 billion ($2.81 billion), up 25% compared to R43.14 billion ($2.25 billion) as of June 30, 2022.
Analysts expect SSL’s revenue for the fiscal year ending June 2024 to be $15.18 billion, while its EPS for the same period is expected to increase 20.4% year-over-year to $3.45.
SSL’s revenue has grown at a CAGR of 15% and 9.8% over the past three and five years, respectively. Also, its EBIT has improved at a CAGR of 59.9% over the past three years.
The stock lost marginally intraday to close the trading session at $12.76.
SSL’s POWR Ratings reflect a promising outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and a B for Sentiment and Quality. Among the 43 stocks in the B-rated Foreign Oil & Gas industry, it is ranked #8. To see additional POWR Ratings for Growth, Value, and Stability of SSL, click here.
Stock #2: Koninklijke Vopak N.V. (VOPKY)
Headquartered in Rotterdam, the Netherlands, VOPKY is an independent tank storage company that stores and handles liquid chemicals, gases, and oil products worldwide. The company owns and operates terminals, including storage tanks, jetties, trucks, etc.
On July 25, VOPKY and The Hydrogen Utility® (H2U) unveiled their partnership regarding H2U's H2-Hub™ Gladstone project. This ambitious project aims to create a multi-billion renewable energy complex in Gladstone, Queensland, focused on the production of green hydrogen and green ammonia.
The stock’s trailing-12-month gross profit margin of 96.20% is 100% higher than the industry average of 48.09%. Its trailing-12-month CAPEX/Sales of 28.04% is 101.6% higher than the industry average of 13.91%. Furthermore, VOPKY’s trailing-12-month levered FCF margin of 13.49% is 116.5% higher than the industry average of 6.23%.
For the fiscal second quarter, which ended June 30, 2023, VOPKY’s revenue amounted to €359 million ($384.42 million), up 6.2% year-over-year, while its EBITDA rose 11.8% from the prior-year quarter to €245.20 million ($262.57 million).
The company’s net profit attributable to holders of ordinary shares and earnings per ordinary share stood at €103.50 million ($110.29 million) and €0.83, up 93.5% and 97.6% year-over-year, respectively.
Furthermore, for the fiscal years ending December 2023 and December 2024, the consensus revenue estimates of $1.60 billion and $1.62 billion represent 6.9% and 1.7% year-over-year improvements, respectively.
Additionally, VOPKY’s revenue and EBIT have grown at CAGRs of 6.1% and 12.8% over the past three years, respectively. Likewise, its EBITDA increased at a CAGR of 7.8% over the same period.
Over the past year, the stock has gained 65.8% to close the last trading session at $36.38.
VOPKY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It also has an A grade for Stability and a B for Growth, Momentum, and Quality. Within the same B-rated industry, it is ranked #4. Click here to see the other ratings of VOPKY for Value and Sentiment.
Stock #1: Santos Limited (SSLZY)
Headquartered in Adelaide, Australia, SSLZY explores for, develops, produces, transports, and markets hydrocarbons in Australia and the Asia Pacific. The company produces natural gas, liquefied petroleum gas, ethane, methane, coal seam gas, liquefied natural gas, shale gas, and condensate, as well as oil.
On August 7, SSLZY, along with its joint venture partners in the Bayu-Undan project, entered into a Memorandum of Understanding (MOU) with TIMOR GAP, the national oil company of Timor-Leste. This MOU sets the stage for the collaborative exploration of partnership opportunities related to the planned Bayu-Undan Carbon Capture and Storage (CCS) project, which is located offshore Timor-Leste.
The stock’s trailing-12-month EBIT margin of 38.03% is 55.7% higher than the industry average of 24.42%. Its trailing-12-month levered FCF margin of 12.01% is 92.8% higher than the industry average of 6.23%. Furthermore, SSLZY’s trailing-12-month net income margin of 24.82% is 72.9% higher than the industry average of 14.35%.
For the six-month period that ended on June 30, 2023, SSLZY’s total revenue came in at $3.06 billion, while its EBIT stood at $1.11 billion. During the same period, the company’s attributable net profit and EPS amounted to $790 million and $24, respectively. Also, its cash and cash equivalents stood at $1.84 billion.
Street expects SSLZY’s revenue for the fiscal period ending December 2023 and December 2024 to be $5.97 billion and $5.93 billion, respectively.
SSLZY’s revenue and EBIT have grown at CAGRs of 23.3% and 46.8% over the past three years, respectively. While its total assets and levered FCF have increased at CAGRs of 17.7% and 17.3% over the same period, respectively.
SSLZY’s shares have gained 5.3% over the past nine months to close the last trading session at $4.98
It’s no surprise that SSLZY has an overall rating of B, which translates to Buy in our proprietary rating system. It has a B grade for Momentum, Stability, and Quality. Out of 43 stocks in the same industry, it is ranked #2.
In addition to the POWR Ratings we’ve stated above, we also have SSLZY’s ratings for Growth, Value, and Sentiment. Get all SSLZY ratings here.
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SSLZY shares were trading at $4.98 per share on Friday afternoon, down $0.00 (0.00%). Year-to-date, SSLZY has gained 2.05%, versus a 17.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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