Beach Energy Limited

Decent Q3FY21 Results: Beach Energy Limited (ASX: BPT) is an oil and natural gas exploration and production company with operations in South Australia and Western Australia, Victoria, and New Zealand. As of 30 April 2021, the market capitalisation of the company stood at ~$3.83 billion. For Q3FY21, BPT posted revenue of $393 million, up by 14% on the previous quarter, due to the improved pricing of gas and oil. It reported oil production of 5.9 MMboe, down by 5% QoQ due to underperformance of Western Flank 2P reserves. However, it was negated by higher output from the Perth Basin gas assets, Senex Energy’s Cooper Basin acquired assets (1 March 2021). During the quarter, BPT executed an agreement with Santos to carry out FEED activities for its Moomba Carbon Capture and Storage (CCS) project in the Cooper Basin. At the offshore Otway Basin, BPT completed the drilling at the top holes at the Geographe 5 (second well) and four after the quarter close.

BPT reported reduced net debt of $20 million, with net gearing at ~1% during the quarter. It held a cash reserve balance of $190 million in Q3FY21.

Q3FY21 Highlights (Source: Company Reports)

Key Risks: The company is exposed to the risk related to the changes in the prices of oil and gas.  Further, it is also exposed to the risk related to the impact of pandemic uncertainties on the business. 

Outlook: BPT has revised and downgraded the production guidance to 25.2 – 25.7 MMboe versus previously estimated guidance of 26.5 – 27.5 MMboe for FY21. This revision is due to the decline in Western Flank 2P oil reserves and reduced customer nominations on the Victorian Otway project. The management has reported that its Kupe compression project is on schedule and budget and slated to commence in 1HFY22 in New Zealand. At the offshore Otway Basin, BPT is currently drilling the rig at Geographe 4 well and targeting undeveloped 2P reserves. It expects maiden production from the wells in FY22.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: BPT distributed $22.8 million as interim dividend for 1HFY21. The stock of BPT gave a negative return of 22.49% in the past three months and a positive return of 8.05% in the past six months. The stock is currently trading lower than the average 52-week price level of $1.15-$2.04. The stock of BPT has a support level of ~$1.1852 and a resistance level of ~$1.4921. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For this purpose, we have taken peers like Central Petroleum Limited (ASX: CTP), Origin Energy Limited (ASX: ORG), Cooper Energy Limited (ASX: COE), etc. For arriving at the above Target Price, we have taken the Debt and Cash figures from the Interim Report as of 31 December 2020. We believe that the company can trade at some discount than its peer average, considering its lower sales volume, production in 1HFY21, downgrade of FY21 production estimates, and the risks associated with the reducing output from the Western Flank 2P oil fields and reduced customer nominations for the Victorian Otway Basin. Considering the low trading levels, increase in top-line and realised prices of oil and gas, expanded portfolio with the Senex Energy’s acquired assets, ongoing drilling at Geographe 4 well, gas discovery reported at the Artisan well 1 and Enterprise 1, the gas production from Kupe project targeted in 1HFY22, and valuation, we give a ‘Hold’ rating on the stock at the current market price of $1.275, down by 24.108% on 30 April 2021, owing to the underperformance of Western Flank Reserves and lower production guidance reported for FY21. 

Byron Energy Limited 

Q3FY21 Result Highlights: Byron Energy Limited (ASX: BYE) is an oil and gas exploration firm operating in the Gulf of Mexico, the US. Its subsidiaries consist of Byron Energy (Australia) Pty Ltd, Byron Energy Inc. and Byron Energy LLC. As of 30 April 2021, the market capitalisation of the company stood at ~$130.03 million. The company reported net revenue of ~US$11.8 million for Q3FY21 versus US$9.2 million in Q2FY21 due to higher realised net prices of oil and gas in the quarter. The net oil production of 132k barrels stood higher for Q3FY21 versus Q2FY21. It reported a fall in its gas production in the March 2021 quarter as well as on a YTD basis. 

BYE reported a revenue of US$26.1 million for YTD 31 March 2021 versus US$17.6 million for YTD 31 March 2020. In January 2021, BYE appointed US-based Seaport Global Securities to avail a more flexible debt financing to repay loans and finance capital for its multi-well drilling on SM58 project. To avail the same, BYE completed and published an interim reserves report to investors updating on its operated and producing properties- “SM71” and “SM58”. It held a cash balance of US$3.1 million as of 31 March 2021.

Production & Sales Summary, Q3FY21 vs Q2FY21 (Source: Company Reports)

Key Risks: The company faces the risk of declining output from its present oil and gas fields, changes in the production level and prices of oil and gas. It also faces the risk of acquisition synergies from the assets purchased and the impact of pandemic uncertainties on the business.

Outlook: At its South Marsh Island 73 Salt Dome Project, BYE plans to drill SM69 E2 well at its primary target of B65 (K4) Sand. The wellbore will be drilled to a depth of ~8,750 feet MD, subject to the rig availability in June/July 2021.

Stock Recommendation: The stock of BYE gave a negative return of 28.12% in the past three months and a negative return of 28.12% in the past six months. The stock is currently trading towards its 52-weeks’ low level of $0.125. The stock of BYE has a support level of ~$0.102 and a resistance level of ~$0.13. On a TTM basis, the stock is trading at a price to book value multiple of 1.4x lower than the industry (Oil & Gas) median of 2.3x, and thus seems undervalued. Considering the current trading levels, increase in net production of oil, higher realised prices, restructured and more flexible debt package, drilling program for well SM69 E2, valuation, and associated risk of production and oil and gas prices, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.115, down by 8% on 30 April 2021.

MMA Offshore Limited

Non-Executive Director Appointed: MMA Offshore Limited (ASX: MRM) operates marine services, provides logistics and supplies base services to the offshore oil and gas sector. Its portfolio consists of assets such as slipway, vessels, and supply base. As of 30 April 2021, the market capitalisation of the company stood at ~$109.59 million. On 30 April 2021, MRM announced that Ms. Sue Murphy AO has joined the company as an Independent Director and as Chair of the Company’s Audit & Risk Committee.

New Contract Wins in Taiwan: Recently, MRM announced the grant of three new offshore wind market projects in Taiwan for a duration of ~9 months (270 days) extendable by 118 days. The company estimates an aggregated contractual revenue of $7 million. As per the contracts, three of company’s vessels -MMA Pride, MMA Crystal, MMA Responder will be mobilised to Taiwan to offer offshore wind farm support services.

Half-Yearly Result Highlights: For 1HFY21, MRM recorded a revenue of $119.9 million, down by 8.4% YoY due to the COVID-19 impact on its operations and reduced demand for its assets and services. MRM registered an increase in EBITDA to $38.3 million, up by 102.6% in 1HFY21 YoY. It posted an NPAT of $15.5 million, up by 259.8% YoY versus losses in 1HFY20. MRM reported a decline in gross debt and net debt to $165.5 million and $72.6 million in 1HFY21. It held a cash balance of $92.91 million during 1HFY21.

P&L Highlights, 1HFY21 (Source: Company Reports)

Key Risks: The company faces the risk of slowdown in the oil and gas business activities, reduced fleet utilisation, impact on its subsea service business due to COVID-19. MRM faces the risk of volatility in demand from the user industries and project delays due to an economic downturn.

Outlook: For FY21, MRM is on track to achieve $30-$35 million underlying EBITDA guidance. The company plans to diversify its revenue from non-oil and gas related activities. It plans to build its renewables division and secure business from government, defence, and infrastructure maintenance contracts. MRM will commence operations on the new subsea project around August 2021 and complete by the end of CY21 or early in 2022. The “MMA Crystal” and “MMA Pride” are planned to begin operations in early April 2021 with the “MMA Responder” commencing in late June 2021.

Stock Recommendation: The stock of MRM gave a negative return of 12.85% in the past three months and a negative return of 19.20% in the past six months. The stock is currently trading lower than its 52-weeks’ average price level of $0.2367-$0.563. The stock of MRM has a support level of ~$0.247 and a resistance level of ~$0.466. On a TTM basis, the stock of MRM is trading at a price to book value multiple of 0.4x, lower than the industry (Oil & Gas Related Equipment and Services) median of 2.1x, thus seems undervalued. Considering the current trading levels, decent financial performance in 1HFY21, a new $20 million contract with TechnipFMC for a subsea installation project in Australia, increasing and diversifying revenue growth through new offshore wind development projects in Taiwan, valuation on a TTM basis and associated risks of supply chain logistics, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.315, up by 3.278% on 30 April 2021.

Note: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.