Beach Energy Ltd (ASX: BPT) shares were sold off on Tuesday.
Investors were hitting the sell button after the ASX 200 energy stock released its full year results.
Beach reported a 9% increase in sales revenue to $1.8 billion but an 11% decline in underlying net profit to $341 million.
But the main reason that investors were heading to the exits was an update on its oil reserves.
Management advised that it has completed an audited 2P reserves revision at its Enterprise field, resulting in a reduction of 11.5 MMboe. Its CEO, Brett Woods, commented: "Disappointingly, over recent weeks we have observed pressure decline at Enterprise which is consistent with a smaller reservoir than originally estimated. We have moved rapidly to assess the impact."
Broker reaction
According to a note out of Bell Potter, its analysts were a touch disappointed with Beach Energy's performance, noting that its result was "marginally weaker than expected."
However, it was pleased to see that management has reiterated its FY 2025 production guidance of 17.5MMboe to 21.5MMboe and capital expenditure guidance of $700 million to $800 million. This compares to 18.2MMboe and $1,093 million, respectively, in FY 2024.
And addressing the elephant in the room, the downgrade to its oil reserves, the broker said:
A -11.5MMboe 2P Reserve revision for Enterprise (Otway Basin) was the key negative of the release, with new production data (Enterprise came online in mid-June 2024) indicating a smaller Resource pool than originally estimated. After production and other adjustments, Otway Basin net 2P Reserves at 30 June 2024 was 43MMboe (down from 63MMboe 12-months earlier); BPT's total net 2P Reserve fell to 205MMboe down from 255MMboe 12-months earlier. EPS changes in this report relate to depreciation adjustments in FY25 and a revised production outlook over FY26-27: FY25 -21%; FY26 -18% and FY27 -17%.
ASX 200 energy stock tipped to rebound
According to the note, its analysts think investors should snap up Beach Energy's shares while they are down.
In response to the update, the broker has reaffirmed its buy rating with a reduced price target of $1.40 (from $1.85). Based on its current share price of $1.26, this implies potential upside of 11% for investors over the next 12 months.
In addition, the broker is forecast a 4% fully franked dividend yield in FY 2025, which boosts the total potential return to 15%.
Commenting on its buy recommendation, Bell Potter said:
Over FY25, Waitsia Stage 2 will ramp-up and new Otway wells are expected to offset Western Flank decline. Capex is now trending lower and production growth will see free cash flow lift from FY26. 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.
