Waitsia Expansion And Secular Trends Will Empower LNG Supply

Key Takeaways

• Strong operational efficiency, market share, and portfolio diversification position Beach for superior cash flow, margin expansion, and resilience against industry volatility.
  
• Early leadership in carbon capture and innovative energy strategies enable Beach to benefit from regulatory shifts and increasing demand for low-emission transition fuels.
  
• Persistent reserve uncertainty, market concentration, escalating costs, and accelerating energy transition risks threaten future revenue, asset values, and long-term financial sustainability.

Catalysts

Operates as an oil and gas exploration and production company.

• Analyst consensus sees Waitsia and LNG swap agreements leading to a step change in cash flow once fully operational, but this likely understates the potential-continued strong execution and even earlier ramp-up could deliver outsized revenue growth and free cash flow ahead of market expectations.
  
• Analysts broadly recognize impressive cost reductions and margin expansion, but Beach's relentless focus on operational efficiency-with unit operating costs already below peers and likely to fall further as Waitsia scales-could drive a structural uplift in net margins beyond consensus, setting a new domestic industry benchmark.
  
• Persistent and growing East Coast gas market deficits, paired with Beach's dominant 19% market share, position the company to benefit from higher long-term realized gas prices and premium contract renegotiations, offering multi-year upside to topline revenue.
  
• Beach's early-mover status and proven execution in carbon capture and storage, including Moomba CCS, position the company to capitalize on regulatory tailwinds and evolving customer demand for low-emission gas, boosting profitability and future contract terms as natural gas's role as a "transition fuel" solidifies.
  
• The strategic pivot into gas peaking and adjacent power markets, leveraging both contracted and spot exposure, provides the foundation for counter-cyclical, higher-margin revenue streams-significantly diversifying Beach's earnings base and smoothing out commodity price volatility over the long term.

Beach Energy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Beach Energy compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Beach Energy's revenue will grow by 4.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -2.1% today to 36.1% in 3 years time.
• The bullish analysts expect earnings to reach A$865.9 million (and earnings per share of A$0.38) by about August 2028, up from A$-43.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 6.5x on those 2028 earnings, up from -66.1x today. This future PE is lower than the current PE for the AU Oil and Gas industry at 13.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.68%, as per the Simply Wall St company report.

Beach Energy Future Earnings Per Share Growth

Risks

• Beach Energy is experiencing recurring reserve downgrades, particularly in the Otway and Perth Basins, suggesting persistent uncertainty and challenges in replacing reserves, which could lead to declining long-term production and negatively impact future revenues and earnings.
  
• The company's reliance on the Australian domestic market, especially the East Coast gas market, exposes it to regulatory changes, demand fluctuations, and increasing policy focus on decarbonization, all of which could shrink addressable market and suppress revenue growth over time.
  
• Heightened capital and abandonment expenditures, including growing decommissioning obligations and cost overruns (notably in offshore and Bass Basin projects), are likely to erode net margins and constrain future free cash flow, hampering dividend sustainability and growth investment.
  
• Secular trends such as the global energy transition toward renewables and stricter ESG mandates are accelerating, potentially reducing long-term gas demand, deterring investor capital, and increasing Beach's cost of capital, which may suppress the share price and future profitability.
  
• Beach faces industry-wide risks of technological displacement (advances in renewables, energy storage, and hydrogen), regulatory tightening (carbon pricing, emissions targets), and declining oil prices, all of which could leave its assets stranded and diminish the value of its conventional upstream portfolio, undermining both revenue and asset valuations.

Valuation

• The assumed bullish price target for Beach Energy is A$2.03, which represents two standard deviations above the consensus price target of A$1.27. This valuation is based on what can be assumed as the expectations of Beach Energy's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$2.55, and the most bearish reporting a price target of just A$0.95.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be A$2.4 billion, earnings will come to A$865.9 million, and it would be trading on a PE ratio of 6.5x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of A$1.27, the bullish analyst price target of A$2.03 is 37.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.