Beach Energy Ltd

BPT Details

Strong performance: Shares of Beach Energy Ltd (ASX: BPT) moved up 10.5% on August 21, 2017 after reporting 353% year on year (yoy) growth in FY17 underlying NPAT at $161.7 million. For FY17, Beach achieved a record production of 10.56 MMboe, up 9% from the prior year. Oil production of 5.72 MMbbl was 11% higher than the prior year and accounted for 54% of total production, while gas and gas liquids production of 4.84 MMboe was 8% higher than the prior year and accounted for 46% of total production. The Drill search assets and operations were successfully integrated and BPT benefited from 100% ownership of its key oil and gas producing permit areas (ex PEL 91 and 106, respectively). Capital expenditure stood at $155 million, 16% lower than the prior year, however operating and cost efficiencies enabled the group to deliver additional wells, infrastructure expansions and increased levels of field activity. During the year, BPT participated in 58 wells at a success rate of 79% and, Exploration & appraisal wells accounted for 31% and 22% of total wells, respectively, with success rates of 44% and 85%, respectively. Notably, drilling successes included three gas discoveries from a four-well operated campaign, Birkhead oil discoveries in ex PEL 91, and four gas discoveries (one subsequent to year-end) from a six-well campaign in southwest Queensland.
 

FY17 Financial performance; (Source: Company reports)

Western Flank oil operations accounted for the majority of Beach’s total oil production with net oil production of 4.8 MMbbl (13,200 bopd) in FY17, up 20% from the prior year. Increased production was attributable to new discoveries and new wells brought online, a range of production optimisation projects, and a full year of contribution from interests acquired as part of the Drillsearch merger. The company has suspended the operation of the Dividend Reinvestment Plan (DRP), effective from August 21, 2017. BPT expects FY18 production to be 10.0 - 10.6 MMboe, and is targeting >10 MMboe production in FY19 and FY20. Given the strong results and ongoing project developments, we reiterate a “Buy” recommendation on the stock at the current market price of $ 0.68

G8 Education Ltd

GEM Details

Cost efficiencies are driving the earnings: G8 Education Ltd (ASX: GEM) witnessed a stock price rise of 8.8% on August 21, 2017 as the group reported half year total revenues of $369m, up 2%; and reported net profit after tax of $30.5m, up 23%. Underlying EBIT was $61.1m, up 6% in comparison to the same reporting period last year. Importantly, the cost efficiencies established in 2H16 continued in the current half-year, enabling the group to generate good levels of profit growth despite the lower occupancy levels. After a slow start to the year, occupancy has been growing ahead of last year. The company maintained guidance for full-year underlying EBIT to be mid-$170m. During the half, the group raised $195m via a $100m domestic institutional placement (at $3.20 per share) and a $95m private placement to CFCG Investment Partners International (Australia) Pty Ltd (at $3.88 per share). This decreased the group’s Net Leverage from 2.2x at 31 December 2016 to 1.2x at 30 June 2017. G8’s target Net Leverage level has been reset from 2.0x to 1.5-1.7x, ensuring the group has sufficient financial flexibility to execute its strategy.


Consolidated income statement; (Source: Company reports)

During the period, G8 Board conducted a comprehensive review of the group’s capital management strategy. The objective of the review was to see whether the group has access to committed debt and equity funding to enable it to implement its strategy and growth activities, while ensuring there is the right balance between financial flexibility and providing good levels of ongoing earnings for shareholders. Further, the company changed its dividend policy which will better position G8 to continue to implement its strategic framework, including the group's ambition to grow revenue and Earnings Per Share. From 1 January 2018, G8 will pay dividends on a semi-annual basis with those dividends being declared in the full year and half year results announcements. It will also transition to a proportionate dividend policy under which the Board intends to pay out 70- 80% of underlying NPAT in dividends.

Stock Recommendation: The group has a strong brand reputation in the childcare centre segment in Australia and it continues to make an investment for centre upgrades and refurbishments.We maintain a “Buy” recommendation on this dividend yield stock at the current price of $ 4.06

Fortescue Metals Group Ltd

FMG Details

Boost from iron ore prices: Fortescue Metals Group Ltd (ASX: FMG) reported a revenue growth of 19% yoy at US$8,447 million (FY16: US$7,083 million), driven by the increase in average Platts 62 CFR index price to US$69.53/dmt (FY16: US$51.37/dmt). Revenue realisation on the average Platts 62 CFR price index for the year was 77% after the impact of timing differences associated with provisional pricing. Underlying EBITDA of US$4,744 million was 48% higher than FY16 reflecting higher average iron ore prices and the continued focus on operational efficiencies which have further reduced Fortescue’s operating costs. 
 

Financial summary; (Source: Company reports)

The strong FY17 financial results reflected higher iron ore prices during the year, as well as the contribution of a sustained focus on productivity and efficiency initiatives to further reduce C1 costs to US$12.82 per wet metric tonne (wmt). The company holds cash of US$1.8 billion with net gearing reduced to 21% following an additional US$2.7 billion in debt repayment during the year and a further US$1.5 billion refinanced, extending maturities to 2022 on improved terms and condition. With this result, the stock price surged 6.4% on August 21, 2017. Although, the stock has declined 21% over the past six months, it has been up 15.7% in the last one year (as at August 18, 2017). At present trading conditions, we give an “Expensive” recommendation on the stock at the current price of $ 5.85

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