Beach Energy Ltd (ASX: BPT) shares fell off a cliff on Friday after the company announced poor production figures and a downgrade in oil reserves in its third-quarter results. Its shares are down almost 24% since Thursday to $1.285 and are not far off their March 2020 lows of $1.150.
With oil prices remaining relatively steady at US$63 per barrel and a rebound in the global economy as vaccination programs are underway, could there be value in the heavily discounted Beach Energy share price?
Brokers weigh in on the Beach Energy share price
Citi: slight upside but nothing exciting
Beach Energy's underperformance was led by its West Flank operations says Citi. This resulted in a downgrade to its 2P reserves for the project by 24.8 million barrels of oil equivalent (mmboe) and the withdrawal of its 5-year guidance. Post downgrade, Citi expects the company's FY21 earnings to fall by approximately 23%.
Despite the significant share price weakness, the broker believes there is a lack of growth catalysts to inspire any significant upside. A neutral rating was retained with the target price cut from $1.88 to $1.42. This is, however, still 10.5% higher than the current share price.
Macquarie: outperform but wary of impairments and guidance withdrawal
Macquarie has been anticipating some weakness from Beach Energy, but its downgrades beyond the Bauer facility came as a major surprise. The broker warns that the withdrawal of guidance and potential for impairments in August could serve as an overhang and drag the share price in the near term.
Macquarie retained its outperform rating for Beach Energy given the stock's 25% fall and reduced its target price from $2.10 to $1.75. This represents a significant upside of approximately 36% from today's prices.
Morgans: share price discount drives add rating
Similar to Macquarie, Morgans retained an add rating but lowered its target price from $2.20 to $1.82 as production forecasts fall and capital intensity increases at Western Flank. This represents an optimistic 41% upside to the current Beach Energy share price. The broker did note, however, that the company lowered FY21 earnings by 5%, which implies increasing operating costs.
