Beach Energy shares fall as analysts downgrade stock
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The news: Shares in Beach Energy fell in early trading after Jarden and Macquarie analysts downgraded the company following its plans to slash costs.
The numbers: Beach Energy shares fell 3.46% to $1.48 by early trade.
Jarden analysts dropped their rating on Beach from 'overweight' to 'neutral' and reduced their target price from $1.75 to $1.55.
They also updated their earnings per share forecasts up 2.4% in FY24, down 11.2% in FY25 and up 3.4% in FY26.
The analysts noted that while FY25 capital expenditure guidance of $700 million to $800 million was "broadly in line" with their estimate, Beach's FY25 production guidance of 17.5 million barrels of oil equivalent per day (mmboe) to 21.5 mmboe was 10% to 27% below prior consensus estimates of 24 mmboe.
Macquarie analysts also downgraded their rating on Beach from 'outperform' to 'neutral' and cut their target price from $1.95 to $1.55.
They left their FY24 earnings estimates unchanged, but reduced forecasts for FY25 and FY26 by 5% and 16% respectively, based on lower production, partly offset by slightly lower operating costs.
On Tuesday, Beach shares closed 2.72% lower at $1.53, after the company announced it would target a 20% reduction in sustaining capital expenditure in FY25. It is also aiming to cut unit field operating costs by 30% to less than $11/barrel of oil equivalent by way of job cuts, organisational and contracting efficiencies and higher production.
The context: Jarden said the key uncertainty for investors was whether there would be further negative updates from the oil and gas play.
The analysts said they saw "elements of conservatism" in Beach's production guidance, with opportunities for "surprise upside" in the medium term. However, they believed the company's free cash flow growth was now "firmly a FY26 story", with an increased risk that the stock could trade sideways in the near term.
Macquarie analysts agreed that with peak free cash flow expected in FY28 to FY29, the stock was "less compelling for now". They noted that there could be value creating merger and acquisition opportunities for Beach, but they expected this to be at least six months away.
Elsewhere, Wilsons Advisory kept its 'overweight' rating, while UBS and Bell Potter retained 'buy' recommendations. However, all three reduced their target price on the stock.
The sources: Jarden research, Macquarie research, Wilsons Advisory research, Bell Potter research, UBS research
