Beach Energy Limited

BPT Details

Beach Energy Limited (ASX: BPT) is engaged in the exploration and production of oil and gas, and is headquartered in Adelaide, South Australia.

Q3FY21 Performance Update:

• During the quarter, the company reported an increase in the revenue by ~14% to ~$393 million, compared to ~$344 million in the prior quarter on the back of ~39% increase in realised oil price.
• The company’s liquidity as on 31 March 2021 stood at ~$430 million. The company has reported a reduction in net debt to ~$20 million as of 31 March 2021.
• The production decreased by ~5% in Q3FY21, when compared to Q2FY21, owing to reduced reservoir performance and a decline in natural field.

Trend in Cash Position (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business expose it to different risks, which includes regulatory risks, environmental risks, project risks, capex risk, etc., to name a few.

Outlook: The company has updated its production pro-forma FY21 guidance to be in the range of 25.2 -25.7 MMboe. It expects to make a capital expenditure in the range of $700- $740 million during FY21. It also anticipates underlying EBITDA to be in the range of $850 - $900 million in FY21, compared to pre-acquisition guidance of $900 - $950 million.

Valuation Methodology: EV/Sales 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 company’s decent balance sheet provides it with opportunities for growth capital programs in FY22 and FY23. As per ASX, the stock of BPT is trading below its average 52-weeks’ levels of $1.150-$2.035. The stock of BPT gave a positive return of ~2.18% in the past one week and a negative return of ~34.64% in the past six months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount to its peer median EV/Sales (NTM trading multiple), considering the impact of COVID-19 on its operations, decrease in production, reduced performance in reservoir and decline in natural field. For this purpose, we have taken peers such as Oil Search Ltd (ASX: OSH), Santos Ltd (ASX: STO), Cooper Energy Ltd (ASX: COE), to name a few. Considering the expected upside in valuation and current trading levels, increase in top-line, improvement in liquidity and planned capital programs, we recommend a ‘Buy’ rating on the stock at the current market price of $1.26 (as on 15 July 2021, 10.:36 AM (GMT+10), Sydney, Eastern Australia).

BPT Daily Technical Chart, Data Source: REFINITIV 

MACA Limited

MLD Details

Change of Interest in the company: MACA Limited (ASX: MLD) is engaged in the businesses of contract mining services and mineral processing services. As per a recent update, Dimensional Entities has undergone a change of shareholding in the company and has increased its voting power to 6.01%.

Update on Contract: On 18 June 2021, the company has been advised by Karara Mining Ltd that MLD will not be the preferred bidder in regard to the extension of the services contract at the Karara Magnetite project. The present contract expires in March 2022.

Update on H1FY21 Performance:

The company has delivered a decent performance during the period with an improvement in top-line.

• Revenue grew by 28.5% to $467.2 million in H1FY21, from $363.5 million in the previous comparative period.
• Underlying EBITDA stood at $69.6 million, reflecting a margin of 14.9%.
• It delivered a NPAT of $11.9 million as compared to $12 million in 1HFY20.
• MLD reported an impressive work in hand position of $3.3 billion as of 31 December 2020.
• It ended the period with a decent cash position of $122.8 million and net debt of $90.8 million as at 31 December 2020.
• The management declared an interim dividend of 2.5 cents per share during the period.

Trend in Cash & Equivalents (Source: Analysis by Kalkine Group)

Key Risks: The company is prone to the risk of volatility in the foreign exchange price and currency. It is also exposed to interest rate risk due to the presence of cash and borrowings on its balance sheet.

Outlook: The company is positive about its prospects in FY21 on the back of a strong order book. It expects revenue to be in excess of $1,050 million for FY21, compared to $808 million in FY20. It expects the growth momentum to continue across its key operating divisions.

Valuation Methodology: Price/Cash Flow 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:  On 3 May 2021, the company has appointed Mr. Nick Marinelli as an Independent Non-Executive Director to the MACA Board. As per ASX, the stock of MLD is trading below its average 52-weeks’ levels of $0.710-$1.515. The stock of MLD gave a positive return of ~11.43% in the past nine months and a negative return of ~36.55% in the past six months. We have valued the stock using a Price/Cash Flow multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount to its peer median Price/Cash Flow (NTM trading multiple), considering the decrease in gross margin & ROE performance, and an increase in debt-to-equity ratio to 0.58x in H1FY21, compared to 0.47x in the pcp. For this purpose, we have taken peers such as Perenti Global Ltd (ASX: PRN), Macmahon Holdings Ltd (ASX: MAH), Emeco Holdings Ltd (ASX: EHL), to name a few. Considering the expected upside in valuation and current trading levels, decent financial performance in H1FY21, decent cash position, strong order book and the key risks associated with the business, we recommend a ‘Buy’ rating on the stock at the current market price of $0.860 (as on 15 July 2021, 10.:30 AM (GMT+10), Sydney, Eastern Australia).

MLD 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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