Shares in Beach Energy Ltd (ASX: BPT) have reversed course and begun the ascent back up north over these past 3 months.
Prices have skidded off a low of $1.16 last year and are trading at $1.48 at the time of writing, having gained more than 13% in the past week.
As such, Beach Energy has started the year off well, with the most recent surge in its share price stemming from the release of its quarterly report last week.
It now leads the S&P/ASX 300 Metals and Mining Index (ASX: XMM) and several other competitors in 2022 after breaking away from the pack at the start of the year, as seen on the chart below.
These results haven't gone unnoticed either. The team at JP Morgan are constructive on Beach Energy shares, assigning an overweight rating on the stock. Analysts at the firm have analysed Beach's quarterly results in the grand scheme of its long-term growth story, and like what they've found. Let's take a look.
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Strong prices support revenue
Beach Energy grew quarterly revenue by 3% year on year to $398 million in the three months ending 31 December 2021, above the broker's internal estimates. Much of the upside was driven by strengths in the commodity markets.
"Stronger-than-expected revenue was primarily due to higher realised prices for liquids. The realised crude oil price of A$117/bbl was 16% above our estimate. This was only partially offset by lower-than-expected gas prices", the broker said.
In fact, Beach Energy realised a gas price of $7.60/GJ this quarter, a 2% gain on the prior period, but still 6% below JP Morgan's forecasts.
The firm is also constructive on the company's project pipeline, noting that "the key highlight from Beach's growth projects was the delivery of first gas from the Geographe 4 and 5 wells to the Otway gas plant".
These catalysts, it reckons, will add to an already superior balance sheet that suggests Beach Energy is well-positioned to pull the trigger on future growth opportunities.
"We think Beach provides good exposure to a diversified suite of assets in Australia. Net debt is close to zero and therefore Beach has the strongest balance sheet of the large caps under our coverage", analysts at the firm wrote.
In fact, Beach Energy is one of JP Morgan's preferred stocks in the sector, given a healthy blend of driving forces behind its share price.
"While we acknowledge recent issues at the Western Flank and the sudden departure of the CEO last year has increased operational risk" the firm said, "we would highlight: the company's exposure to East Coast gas; the balance sheet is also net cash and in a strong position to fund its growth projects; and the stock is trading at a P/NPV of 0.72x"
It also says that in order for Beach Energy to achieve current production guidance of 21-23mmboe, it needs to produce a minimum of 10-12mmboe in the remaining 2 quarters of FY22.
Capital expenditures also appear to have fallen well short of full year guidance of $900 million-$1.1 billion, with just $417 million spent year-to-date. The broker noted that this represents a substantial saving.
JP Morgan rates Beach Energy as a buy and values the company at $1.85 per share.
In a list of analysts covering Beach Energy provided by Bloomberg Intelligence, 79% have it as a buy whereas just 1 broker has it as a sell.
Beach Energy share price snapshot
In the last 12 months, the Beach Energy share price has fallen 14% and is well behind the benchmark indices in that time.
This year to date however, shares have reversed course and are now trading up around 17% after soaring another 13% in the last week of trading.
