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Growth Portfolio: Beach Energy Ltd (ASX: BPT)


Published 17-NOV-2016 00:00 A.M.


1 minute read

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Overview: Beach Energy Group ("Beach Energy", "the Company"), is an Australian oil and gas company focused on the Cooper/Eromanga basin. During FY16 Beach Energy produced 9.7M barrels of oil equivalent, with 53% being oil and 47% gas and gas liquids. The Company recently completed the merger with Drillsearch Energy Limited, which is now operating as a fully owned subsidiary of Beach Energy, and divested assets in Egypt and Queensland.

Catalysts: Beach Energy is highly leveraged to any recovery in the oil price generating an additional $50m NPAT if oil prices increase by US$10 per barrel. The Company successfully identified operational cost savings, reducing the cash flow break-even point to $26 per barrel. Beach has a strong balance sheet with 243 million in cash and undrawn debt facilities of $350m. The merger with Drillsearch may result in further synergies and could be a value driver.

Hurdles: Global benchmark oil prices have significantly declined since 2014 and there is no guarantee that prices won’t fall further. Beach Energy posted a statutory loss during FY16, which may affect the company’s ability to pay dividends in the future. There are integration risks associated with the Drillsearch merger.

Investment View: Beach Energy offers transitional exposure to the domestic oil and gas market. The Company has a strong balance sheet with surplus cash and access to additional capital. Generating free cash flow at the lower end of the commodity cycle, Beach Energy is well-positioned to benefit from any cyclical recovery in the oil and gas market which may allow for higher dividend distributions. However, commodity price volatility, lumpy earnings, and integration risks are primary hurdles. Beach Energy is sensitive to price movements but we believe the valuation is compelling and the risk to reward ratio favourable. We initiate coverage with a ‘buy’ recommendation.


General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

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The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

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