Beach Energy Limited

BPT Details

A Look at Q1FY21 Results: Beach Energy Limited (ASX: BPT) is engaged in the exploration and production of oil and natural gas with assets in South Australia and New Zealand.  As on 4^th November 2020, the market capitalisation of the company stood at ~$2.80 billion. The company reported an increase of 13% in sales revenue in Q1 FY21, which came in at $361 million as compared to $320 million in Q4 FY20. This was due to higher prices of oil (38%), LPG (26%) and condensate (39%), despite a 5% fall in gas and ethane prices for the Q1FY21. During the period, the company experienced a 16% rise in the average realized pricing of $51.8/boe across all products. The production output for Q1FY21 stood at 6.77 MMboe versus 6.84 MMboe in Q4 FY20 registering a decline of 1%. The sales volume declined by 2% in Q1 FY21 due to lower volume of oil production and timing of shipments, flat output of gas and increased sales volume of LPG and condensate. The company has incurred a capital expenditure of $135 million on the exploration, and development of plant and equipment in Q1 FY21. It is planning to take up 2 key drilling campaigns – Enterprise 1 and Ironbark 1 in Q2 FY21.

Production and Sales Highlights, Q1 FY21 (Source: Company Reports)

Beach to Acquire Senex Energy’s Cooper Basin Portfolio of Assets: As on 3^rd November 2020, BPT announced that it has implemented an Asset Sales Agreement to acquire Senex Energy’s Cooper Basin’s assets for a cash consideration of $87.5 million. With this acquisition, BPT will become the sole operator in the Western Flank and related infrastructure. The company expects approximately $5 million in annual operating cost savings in the first-year, post acquisition. Acquisition includes 6.8 MMboe of 2P reserves and estimates production of 0.6 MMboe for FY21. 

Outlook: The company has provided FY21 estimates of production to be in the range of 26.0-28.5 MMBoe, capital expenditure to be in the ambit of $650-$750 million, underlying EBITDA ($900-$1,000 million), DD&A ($17.5-$18.0/Boe) and field operating costs (8.2-8.75/ Boe).

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

EV to Sales Based Market Multiple Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: For Q1 FY21, the company reported a net cash balance of $9 million and liquidity balance amounting to $459 million. The stock of BPT gave a negative return of 6.439% in the past one month and a negative return of 16.271% in the last six months. The stock is inclined towards its 52-weeks’ low levels of $0.920 and retains a potential for further growth. On a Technical front, the stock of BPT has a support level of ~$1.084 and an immediate resistance level of ~$1.368. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and have arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers such as Viva Energy Group Limited (ASX: VEA), Woodside Petroleum Limited (ASX: WPL), Origin Energy Limited (ASX: ORG) and Santos Limited (ASX: STO). Considering BPT’s Q1FY21 results, pipeline of drilling explorations, recent agreement to acquire Cooper Basin portfolio, and decent outlook provided for FY21, we recommend a “Buy” rating on the stock at the current market price of $1.235, up 0.406% on 4 November 2020.

BPT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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