The Beach Energy (ASX: BPT) share price hit a 9-month low in late 2018. Since then, the share price has recovered to $2.14, close to its all time high.
Beach delivered a strong half-year report with optimistic future growth.
Recent half-year results showed impressive profitability with sales revenue up 147% and its underlying net profit after tax up 199%. This was a result of strong demand for gas and oil output, the Lattice acquisition synergy and increasing oil and gas prices.
Additionally, the statement of cash flows showed strong organic increases in its operating cash flows.
The Lattice acquisition from Origin Energy Ltd (ASX: ORG) back in 2018 has been fully integrated into operations at Beach. Despite the large borrowing to acquire Lattice, Beach is paying down its debt diligently while achieving the cost-saving synergies from the acquisition.
Furthermore, Beach has announced the 40% sale of its Otway Basin project which has an expected completion date of Q3 FY19. Proceeds from the sale will be used to pay down debt. Beach is expecting to be more than two years ahead of its original debt-free target.
Improving the health of Beach's financial statements will allow for future acquisitions or an increase of investment to its organic growth.
What is the future outlook for Beach Energy?
Beach has narrowed its future guidance for FY19 figures. The higher capital expenditure is due to drilling operations planned. Provided that Beach manages to maintain a successful drill rate figure similar to the previous 6 months, the underlying EBITDA guidance between $1.25 billion – $1.35 billion should be achievable.
Currently, the Beach Energy share price trades with a price to equity of 12.65. There is strong value to be found in this share price given that it trades below an industry average of 13.12 and has signs of growth.
Beach currently pays a very small dividend to shareholders and therefore is able to reinvest profits for capital growth. If Beach is able to reduce its debt and maintain similar drilling success rates, it should be able to meet its five-year target of ROCE between 17%-20%.
Foolish takeaway
The Beach Energy share price shows strong value and is well positioned for future growth. As with many other oil exploration companies, the profitability of Beach Energy is derived from the price of oil and currency exchange rates.
Provided that Beach Energy can deliver the promises made in its half-year report, the share price should have plenty of gas left.
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