Morningstar | No-Moat Beach Edges to Fiscal 2019 Guidance High-End. We Increase our FVE to AUD 1.95 on Pricing. See Updated Analyst Note from 29 Apr 2019
We increase our Beach Energy fair value estimate by 8% to AUD 1.95 per share, due to higher near-term Brent crude prices and the time value of money. We up our 2019 and 2020 Brent crude price forecasts by 9.1% and 9.6% to USD 68.15 per barrel and USD 67.65 per barrel, respectively, in line with the futures curve. Our long-term Brent price forecast is unchanged at USD 60 per barrel in 2021 dollars. Our increased fair value estimate equates to a little changed 2023 EV/EBITDA exit of 4.6, assuming 6.4% five-year EBITDA CAGR to AUD 1.05 billion by fiscal 2023. We continue to sit at around 30 million barrels of oil equivalent, or mmboe, production target by fiscal 2023, lower than Beach’s 36 mmboe stretch target, as we want to see more clarity around contributing projects.Higher prices chiefly drive our fiscal 2019 and fiscal 2020 EPS forecasts 17% and 19% higher to AUD 0.22 and AUD 0.15, respectively. But fiscal 2019 also benefits from a number of favourable guidance tweaks. While the ranges are unchanged Beach says fiscal 2019 production will be at the upper end of 28-29 million mmboe, capital expenditure will be at the lower end of AUD 450-500 million, and underlying EBITDA will be at the upper end of AUD 1.25-1.35 billion.
We were already at the upper end of production guidance, but we lower our capital expenditure target from a prior midrange position. In combination with higher prices and reduced operating costs, our underlying fiscal 2019 EBITDA forecast increases by 9% to AUD 1.32 billion, excluding AUD 110 million gain from Lattice contract unwind.
Beach reported a modest decline in first-quarter fiscal 2019 production to 7.2 mmboe in line with expectations. But better than expected oil and gas price realisation drove revenue up by 6.5% to a higher than anticipated AUD 470 million. Net debt fell by AUD 112 million to AUD 219 million, with Beach on track to be debt-free upon completion of the Otway sale in the June 2019 quarter.
Beach Energy is engaged in oil and gas exploration, development and production and investment in the resources industry. Co.'s operating segments include Cooper Basin, which includes oil and gas sales from Australian production; Other Australia, which includes Co.'s interest in all on-shore and off-shore production and exploration tenements within Australia other than the Cooper Basin; and International interests, which includes Co.'s interests in all areas outside Australia and oil and gas sales from Egyptian production. As of June 30 2016, Co. had total proved and probable reserve estimate of 69.8 million barrels of oil equivalent.
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