Is Beach Energy Ltd a buy at this share price?

Beach Energy Ltd (ASX:BPT) looks quite cheap at today's prices.

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The Beach Energy Ltd (ASX: BPT) share price traded flat after the company released its half-year results to the market this morning, despite a big increase in profits. Here are some of the highlights:

  • Revenue rose 26% to $345 million
  • Net profit after tax up 1,000% to $103 million on production of 5.5 million barrels of oil equivalent (mmboe)
  • Dividends of 1.5 cents per share
  • Cash flow break-even prices fell 23% to US$20/barrel
  • $148 million net cash
  • Full year production outlook for between 10.3mmboe and 10.7 mmboe

So What?

Like some of the other oil producers we've covered recently, including Senex Energy Ltd (ASX: SXY) here and Santos Ltd (ASX: STO) here, Beach Energy is looking interesting after its latest results.

Lower production costs and the recent increase in oil prices have done wondrous things to company profitability – Beach today is priced at 13x its half-year profits, with another 6 months of the year to go.

At least part of the benefit came from an $8 million tax benefit – an unsustainable benefit if Beach continues to be profitable. Indeed, having to pay tax will drag down Beach's profits over the medium term despite the current benefit provided. Still, cost savings have reportedly resulted in the company targeting a larger exploration program in 2017, at a lower capital cost than was previously forecast.

Now What?

Beach is aiming to sell off non-core fields that don't have a clear 'line of sight' to attractive shareholder returns. It will presumably use the funds to invest in its key prospects, and management stated today that more than two thirds of its discretionary expenditure is invested in projects with forecast Internal Rates of Return (IRR) of above 30%. If realised, these are very attractive areas for the company to invest in.

While the second half of the year will be weaker and oil prices remain variable, Beach Energy looks worthy of further investigation at today's prices.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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