Buy this ASX 200 energy stock if you want a big return

Bell Potter sees a lot of value in this energy stock at current levels.

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Beach Energy Ltd (ASX: BPT) shares were under pressure on Tuesday.

The ASX 200 energy stock dropped almost 2.5% to $1.53 after investors responded negatively to its strategic review.

What did the ASX 200 energy stock announce?

Yesterday Beach Energy revealed the outcome of its strategic review. It has laid out a plan that it believes will result in operating cost and capital reductions totalling ~$135 million.

This will come from a 23% headcount reduction, ~$35 million field operating cost savings, and a ~$100 million sustaining capital expenditure reduction.

Management believes that this will help it deliver leading shareholder returns through the sustainable supply of energy.

In addition, the ASX 200 energy stock provided its guidance for FY 2025 with the review.

Its initial FY 2025 guidance is production of 17.5MMboe to 21.5MMboe and capex of $700 million to $800 million. This compares to FY 2024 guidance of ~18MMboe and capex of the top end of $900 million to $1,000 million.

Broker response

Although the market wasn't overly enthralled by Beach Energy's strategic review, the team at Bell Potter has seen enough to remain positive on the company and its shares.

And while it has trimmed its earnings estimates to reflect the ASX 200 energy stock's updated outlook, it continues to see value in its shares. It commented:

The Strategic Review outcomes are largely as expected; strong on cost out targets and capital discipline. Adjusting for the updated outlook, EPS changes in this report are: FY24 +11%; FY25 -25%; and FY26 -11%.

Should you invest?

Bell Potter has responded to the review by retaining its buy rating with a trimmed price target of $1.75. This implies potential upside of 14.4% for investors over the next 12 months.

In addition, the broker expects a 2.6% dividend yield from its shares, which boosts the potential total return to 17%. Bell Potter concludes:

FY25 will be a year of consolidation as Waitsia Stage 2 ramps up and new Otway wells offset Western Flank decline. However, capex should now be trending lower and production growth will see free cash flow lift from FY26. BPT has retained a strong balance sheet capable of supporting the group's dividend policy. BPT's near-term production growth is a key differentiator when compared with domestic peers. With a positive view on Australian east coast gas and LNG markets, and a strong production and earnings growth outlook, we maintain a Buy recommendation.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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