Beach Energy (BPT) - Flows to come

Beach Energy (BPT) is an oil and gas exploration and production company with core assets across Australia and New Zealand supplying gas to the domestic market. The company recently reduced its production guidance to the lower limit of previous forecasts due to certain operational challenges. While these issues are mostly isolated incidents and largely beyond the company’s control, they contribute to a series of three unfortunate events for the company. However, despite years of setbacks and capital expenditure overruns, we anticipate that BPT is on the verge of generating robust free cashflows starting from 2025.

In the fourth quarter of 2024, BPT’s production of oil and gas came in 15% below expectations due to the natural field decline in the Cooper Basin and interruptions caused by rainfall.  BPT’s recent FY24 financial results were inline with expectations, and guidance for FY25, which was issued in June, remains the same. Despite experiencing several years of delays and capital expenditure overruns, BPT is expected to generate strong free cash flows (FCFs)starting from FY25.

Post the update, we have made only minor changes to earnings, primarily from incorporating the June-quarter actuals. Our EPS estimates fall 4%, 3% and 1% for FY24, FY25 and FY26, respectively.  In our view, BPT is undervalued, and its cashflow outlook is compelling, with an expected free cash flow yield of more than20% for the period from FY26 to FY30. There is also potential upside from the removal of bottlenecks and expansion at the Waitsia project, cost savings, and M&A opportunities.

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