The Beach Energy Ltd (ASX: BPT) share price is recovering on Friday after taking a tumble yesterday.
At the time of writing, the energy producer's shares are up 1% to $1.37.
Why did its shares tumble on Thursday?
Investors were selling down Beach Energy shares yesterday amid news that the company has abandoned its target schedule and capital estimates for the Waitsia Stage 2 project.
Beach Energy made the move in response to the tight labour market in Western Australia, which has impacted construction progress and created a range of uncertain outcomes.
Why is the Beach Energy share price rebounding?
Today's gain may have been driven by a reasonably bullish broker note out of Bell Potter this morning.
According to the note, the broker has responded to yesterday's news by retaining its buy rating with a slightly trimmed price target of $2.05.
Based on the current Beach Energy share price, this implies potential upside of approximately 50% for investors over the next 12 months. The broker also expects a 3% dividend yield to sweeten the deal even further.
While disappointed with the news, Bell Potter remains positive. It said:
Waitsia Stage 2 is a key component of BPT's near-term production growth, adding around 7.8MMboe/year net capacity (for context FY23 production guidance is 19.0-20.5MMboe). Delays to the project will mostly impact FY24 production and earnings estimates and make providing FY24 guidance problematic for BPT. However, the impact on valuation is less pronounced with production deferred to later periods. BPT has a strong balance sheet to withstand capital cost pressures.
The broker then concludes:
BPT has a strong, fully funded production growth outlook, diversified across five energy basins and across four separate gas markets, including LNG. BPT is rolling-off peak capex into a step-change in production and free cash flow in FY24, has a strong balance sheet, and has a capital management framework with franked dividends a key component. With a positive view on Australian east coast gas and LNG markets, and BPT's strong earnings growth outlook, we maintain a Buy recommendation.
