Is the market missing Beach Energy's potential?

Growing long-term prospects and a cheap share price creates opportunity for investors.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors still trying to track down companies trading at bargain prices may have overlooked the potential of Beach Energy (ASX: BPT) as a long-term winner. Over the last 12 months the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has climbed 21%, however shares in the Cooper Basin oil and gas producer are up exactly 0%.

It's a curious result for a company that has seen 10% annual production growth since 2011 and is forecasting between 10% to 16% growth for the financial year 2014. This will be an increase in production from 8 million barrels of oil equivalent (mmobe) in 2013 to between 8.7 and 9.3 million at around a 50/50 mix of oil and gas.

So far Beach Energy has been making strong efforts to achieve its forecasts. In the first quarter of FY14 Beach had an 80% drilling success rate from the 27 wells it drilled as part of an aggressive programme aiming to increase production and identify additional pockets of reserves.

But despite this, the company trades at a price to earnings ratio of just 11 – a ratio much more likely to fit a fully mature company with limited growth potential or perhaps a debt-laden start-up. Beach Energy fits neither of these profiles.

The company holds $402 million in cash, which makes up 23% of its $1.7 billion market capitalisation and which will be the means to fund its growth. Although the nature of oil and gas exploration is traditionally high risk, investing in an oil company with no debt significantly lowers the risk of the company being seized by creditors and going belly-up if something goes wrong.

Beach Energy also has partnership deals with some of the country's biggest major energy operators, including Santos (ASX: STO) and Origin Energy (ASX: ORG). The company expects to capitalise on the rising demand for natural gas from Australia's east coast and signed a deal to sell $1.5 billion of natural gas to Origin in April this year with this in mind.

Foolish takeaway

Major analysts including Credit Suisse, Citigroup and Bank of America rate Beach Energy as 'neutral' according to the Analyst Rating Network, but given its prospects and conservative price they, too, may be over looking Beach's potential.

Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned. 

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »