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Why Beach Energy Ltd (ASX:BPT) shares have been smashed today

The Beach Energy Ltd (ASX: BPT) share price has been crushed on Monday following the release of the energy producer’s full-year results for the 12 months ended June 30.

At the time of writing the Beach Energy share price is down 9% to $1.70.

Here’s what happened in FY 2018 in comparison to a year earlier:

  • Total production increased 18% to 19 MMboe.
  • Sales revenue up 92% to $1,250 million
  • Underlying net profit after tax up 86% to $302 million
  • Reported net profit after tax down 49% to $199 million.
  • Diluted earnings per share of 9.1 cents.
  • Outlook: FY 2019 production volume expected to be in the range of 26 to 28 MMboe.

While the company’s underlying result was undoubtedly strong, the market was expecting an underlying profit of $307 million in FY 2018.

This may only be a small miss, but it is worth remembering that its shares have rocketed higher over the last 12 months. In fact, even after accounting for today’s sizeable decline, they are up 150% since this time last year.

Rising oil prices and Beach Energy’s acquisition of Lattice Energy from Origin Energy Ltd (ASX: ORG) are behind the impressive share price rise.

The reported profit decline was largely expected by the market. It was impacted by exploration asset impairment and non-recurring items such as acquisition and integration costs.

What about FY 2019?

Management is targeting production volume in the range of 26 to 28 MMboe in FY 2019. This will be an increase of approximately 37% to 47% year-on-year.

Pleasingly, this could grow further in the following two years with management embarking on a record year of investment this year. This aims to increase its production to beyond 30 MMboe by FY 2021.

Should you invest?

I estimate that Beach Energy’s shares are changing hands at approximately 12x underlying earnings.

This is a reasonable discount to peers including Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL), which could make it worthy of consideration if you’re bullish on energy prices. Especially given the sizeable increase in production that is expected this year and the impact this could have on its profits and cash flow.

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