Beach Energy Limited

BPT Details

Q1FY22 Financial and Operational Highlights: Beach Energy Limited (ASX: BPT) is engaged in the exploration, development and production of oil and gas. For the quarter ended 30 September 2021 (Q1FY22), the company witnessed a fall of 4% in production to 5.7 MMboe, mainly due to natural Western Flank oil decline. Sales revenue for the quarter also went down by 8% to $388 million, which was partially offset by higher liquids prices.

• During the quarter, BPT wrapped up drilling at Geographe 5 development well. The company also recognized two discoveries (Rosebay and Lowry South) from three exploration wells in Western Flank gas acreage.
• The company refinanced its debt facility and upsized it with a new $600 million revolving debt facility.

FY21 Financial Summary:

• Fall in Revenue: During FY21, the company recorded sales revenue of $1,519 million as compared to $1,650 million in FY20, reflecting a fall of 8% over pcp.
• Favourable Outcome Supported EBITDA: Backed by favourable arbitral outcome with respect to the carbon liability associated with a Kupe GSA, BPT recorded underlying EBITDAX of $1,010 million and underlying EBITDA of $953 million.
• Strong Balance Sheet: BPT closed FY21 with a strong balance sheet, evident by net debt of $48 million, net gearing of 1.5% and liquidity of $402 million.

Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Price Risk: The company’s operational and financial health could be impacted by adverse movement in oil prices.
• Regulatory Risk: BPT is exposed to a more complex regulatory environment; hence any non-compliance may lead the business to fines, penalties, etc.

Outlook:

• For FY22, the company is focused on finishing the drilling of Geographe 5 and tie-in of the two Geographe development gas wells to the Otway Gas Plant. BPT is expecting its first production in mid-FY22.
• The company is expecting production for FY22 in the range of 21.0 – 23.0 MMboe and capital expenditure of between $900 – 1,100 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: As per the media speculations, the company’s investors are gearing up for a class action suit as the company downgraded its forecast earnings from its Western Flank oilfield in the Cooper Basin by up to $100 million during April 2021. However, BPT has not specified any announcement concerning the same. As on 30 September 2021, the company’s liquidity has grown to $643 million with net cash of $43 million. The company is trading near to its 52-week low-high average of $1.522. The stock of BPT gave a positive return of ~16.19% and 16.66% in the past one and three months, respectively. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a correction of high-single-digit (in % terms). The company can trade at a slight discount to its peer’s median EV/Sales multiple, considering the COVID-19 uncertainties, low gross margin and declining net margin. For the purpose of valuation, peers such as Origin Energy Ltd (ASX: ORG), Cooper Energy Ltd (ASX: COE), Karoon Energy Ltd (ASX: KAR), and others have been considered. Considering the expected correction, solid rally in the past few months, current trading levels and key risks associated from the class action suit, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $1.455 as on 27 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

BPT Daily Technical Chart, Data Source: REFINITIV  

Note: The purple colour line in the chart depicts RSI (14-period).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: 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.

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