If you're looking for market-beating returns and exposure to the energy sector, then Beach Energy Ltd (ASX: BPT) shares could be the way to do it.
That's the view of analysts at Bell Potter, which believe the ASX 200 energy stock could be undervalued.
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What is the broker saying about this ASX 200 energy stock?
According to a note this morning, the broker was pleased with Beach Energy's performance during the fourth quarter. It notes that production, sales volumes, and revenue were stronger than it was expecting. The broker said:
BPT reported Q4 FY24 total production of 4.8MMboe (BP est. 4.6MMboe), group sales of 5.4MMboe (BP est 4.7MMboe) and revenue of $433m (BP est $409m). Production and sales benefited from strong performance in the Otway Basin, with first gas from the Enterprise field and strong customer nominations. Cooper Basin JV volumes were flat and natural field decline at the Western Flank continued. In the Perth Basin, production levels were consistent and BPT sold a second Waitsia LNG cargo sourced from own production and third-party swaps.
Revenue was supported by strong sales (including the LNG cargo) and realised prices (gas $10.30/GJ). At 30 June 2024, BPT had net debt of $583m (prior quarter $494m) and cash liquidity of $437m which benefited from a debt refinance providing an extra $100m funding headroom.
Big returns
In response to the update, Bell Potter has reaffirmed its buy rating and lifted its price target on the ASX 200 energy stock to $1.85.
Based on the current Beach Energy share price of $1.55, this implies potential upside of over 19% for investors over the next 12 months.
In addition, the broker is forecasting fully franked dividend yields of 2.6% in FY 2024 and then 3.2% in FY 2025. This increases the total potential return to approximately 22%.
Bell Potter's buy rating is based largely on its positive view of the Australian east coast gas and LNG markets and the ASX 200 energy stock's strong production and earnings outlook. It explains:
FY25 will be a year of consolidation as Waitsia Stage 2 ramps up and new Otway wells offset Western Flank decline. 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.
