An upward movement in stock prices of the companies operating in Energy Sector was noted on December 08, 2017. In the last one week, most of the companies in the sector have performed well and some showed a remarkable growth. Looking at the insights, there is a possibility that the prices can rally further up based on the ongoing performance of few select stocks. Below are our views on 2 such Energy Stocks with a ‘Hold’ position.
Origin Energy Ltd (ASX: ORG)
Improved Business Performance: Origin is a leading gas producer for Australian and international markets and uses many energy resources to make electricity, ranging from traditional fuels like coal and natural gas to renewables. Looking at the financials, there was an increase in FY17 EBIDTA of $834 million to $2.5 billion, i.e., a 49% growth, and the group is now targeting a range of $1.7 billion to $1.8 billion in 2018 reflecting an increase of up to 14 to 21%. In terms of APLNG production, the group is expected to achieve 245-265 PJ in 2018, which is an increase of 7-16%.
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Delivering on Priorities (Source: Company Reports)
ORG’s return on capital employed increased to 6% from 2.9% from last year while capital expenditure decreased to a great extent following the completion of development projects across Otway Bass and Cooper basins. Australian Pacific LNG has made a strong start to operations and produced 10% above its nameplate capacity through the 90-day two train Lender’s test and is focused on improving its productivity and reducing cost base significantly. Also, the key priority is debt reduction and ORG is targeting adjusted net debt of below $7 billion by the end of 2018 with the sale of Lattice Energy which was their conventional gas asset. The group announced for the sale of the asset in September 2017 for $1,585m.
By looking at the increase in the price by 20.9% in the last six months and catalysts such as growth in renewables, we believe that the stock is a high conviction one to perform well going forward.
Beach Energy Ltd (ASX: BPT)
New gas sales agreements in place: Beach Energy, an oil and gas exploration and production company in South Australia’s Copper Basin which is Australia’s most prolific onshore oil and gas province, witnessed a share price movement of 5.3% in an upward direction on December 08, 2017. The boost seems to come in from favourable oil price movement. Meanwhile, the group is looking for replacements for its Audit Committee considering its director, Fiona Bennett’s retirement.
Looking at the financial position, the group has performed well with FY17 underlying net profit after tax increasing 353% to $162 million, which was achieved against the backdrop of an increase in oil price. Operating cash flow increased 38% to $321 million and also the Cooper Joint Venture generated $105 million free cash flow which was a significant increase over last year. The production level of oil also increased which was due to the more drilling of wells and resulted in optimised production from the existing fields. It also acquired Lattice Energy that transformed BPT into a cash generating unit as now Beach has become a multi-basin producer and also provides a stability of earnings through long term gas sales contract. BPT is now targeting 10.0 to 10.6 million barrels of oil for FY18. In the recent monthly drilling report, it was observed that latest oil development and appraisal campaign at Cooper Basin Joint Venture commenced with a huge success while Western Flank Gas exploration was also tracking well. With continued growth at Cooper Basin Gas Acreage with new gas sales agreements in place, the group seems to be moving on an upward trend.
BPT stock is up by 75% in the last six months (as at December 07, 2017) and by looking at the on-going performance, we see more upside momentum in the long-term.
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