Company Overview: Beach Energy Limited (ASX: BPT) is an oil and gas exploration and production company, which is headquartered in Adelaide, South Australia. The company is a key supplier to the Australian east coast gas market. The asset portfolio of the company includes ownership interests in strategic oil and gas infrastructure and assets across Australia and New Zealand. The company operates its business via three segments: South Australian and Western Australian (SAWA), Victorian and New Zealand.

BPT Details

Strengthened Financial Position to Underpin Future Business Growth: The company operates a diversified portfolio with six production hubs, which are supplying to three distinct gas markets. BPT’s production portfolio comprises 63% from gases and 37% from liquids. The company has a decent balance sheet position with net cash of $73 million and net gearing of -2.3% as of 31 December 2021. The company had total liquidity of $673 million, which includes $460 million in undrawn loan facilities at the end of 1HFY22. BPT believes that it is in a decent position to finance its future growth strategy, which includes the committed capital towards the offshore Otway drilling and Waitsia Stage 2 development. The company is targeting production of 28 MMboe in FY24, excluding exploration and pre-FID developments. In addition, BPT intends to deliver steady cash flow from 8 gas plants across four markets by FY24. 

1HFY22 Financial and Operational Highlights: During the half-year, the company entered a Heads of Agreement (HOA) with BP Singapore Pte. Limited, a subsidiary of BP Plc for the supply of its share of liquefied natural gas from Waitsia Gas Project Stage 2. The company expects LNG supply to commence in 2HCY23.

• During 1HFY22, the company received sanctioning of Moomba CCS project and initiated execute phase with operator Santos. The company recorded production of 11.0 MMboe as compared to 13.7 MMboe in 1HFY21.
• Sales volume for the half-year stood at 11.2 MMboe against 13.4 MMboe in 1HFY21. BPT posted an EBITDA of $513 million at a revenue sales margin of 65%, aided by realised oil price of $113.6/bbl.
• As a result of the successful execution of growth projects, the company witnessed a growth of ~66% in statutory Net Profit After Tax (NPAT) to $213 million.
• The company successfully refinanced the debt facility to $600 million with favourable terms and margins to the previous debt facility and declared a fully franked interim dividend of 1.0 cps.

Production Portfolio (Source: Analysis by Kalkine Group)

FY21 Summary:

• For the year ended 30 June 2021, the company recorded a fall of 4% in production to 25.6 MMboe due to the lower Western Flank oil volumes. Underlying net profit after tax (NPAT) for the year amounted to $363 million.
• At the end of the year, the company had a strong balance sheet, aided by net gearing of 1.5% and liquidity of $402 million.
• The Board of BPT has maintained its 1 cent per share dividend for shareholders in spite of the downgrade to Western Flank production and reserves.

Top 10 Shareholders: The top 10 shareholders together form around 42.79% of the total shareholding, while the top 4 constitute the maximum holding. Seven Group Holdings Limited and Mitsubishi UFJ Financial Group Inc. are holding a maximum stake in the company at 30.02% and 2.66%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: During FY21, the company recorded an EBITDA margin of 61.7% in FY21 as compared to the industry median of 35.2%. It posted a current ratio of 1.68x in FY21 as compared to the industry median of 1.15x. Cash cycle for the year stood at 7 days in FY21 against the industry median of 19.4 days. On the leverage side, the company recorded a debt-to-equity ratio of 0.09x in FY21 as compared to the industry median of 0.54x.

Liquidity and Leverage Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Oil Price Risk: The company’s operational and financial performance could be impacted by the adverse movement in the prices of oil globally.
• Climate Change Risk: BPT is exposed to risks arising from the change in climate, which could hamper its operational performance.
• Funding Risk: The oil and gas business involve ample capital expenditure to efficiently run its operations. Any failure in receiving funding could impact its topline.

Outlook: For FY22, the company expects production in the range of 21.0 – 23.0 MMboe and capital expenditure in the ambit of $900 – $1,100 million. In addition, it expects to report unit operating costs in the vicinity of $11.50 – $12.50/boe and Unit DD&A of between $15.75 – $16.75/ boe. Looking forward, the company would continue to pursue organic opportunities throughout the portfolio to maintain plateau production, and it would continue to evaluate value accretive inorganic growth. For FY22, the company is primarily focused on drilling the three remaining Thylacine offshore wells, FID for Enterprise onshore pipeline project, and start Waitsia development well drilling. For FY23, the company is planning exploration at Perth Basin. The company is targeting net-zero emission by FY50.

Capital Expenditure Outlook (Source: Analysis by Kalkine Group)

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of BPT has a 52-week low and high range of $1.010 - $1.830, respectively. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average, P/E multiple, considering the COVID-19 uncertainties and recent fall in production, etc. For the purpose of valuation, a few peers like Armour Energy Ltd (ASX: AJQ), Santos Ltd (ASX: STO), Woodside Petroleum Ltd (ASX: WPL), and others have been considered. Considering the expected upside in valuation, growing earning, strengthened financial position, optimistic long-term outlook, diversified production portfolio, decent liquidity position, and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $1.583, as on 14 February 2022, 11:15 AM (GMT+10), Sydney, Eastern Australia.

BPT Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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