BPT 3.90% $2.40 beach energy limited

10 ideas to improve share price

  1. 2,005 Posts.
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    On the surface, fundamentals still appear good with BPT.

    However, in the short term there is still a disconnect between the BPT share price and its underlying fundamentals. The question I have been mulling over for the last few days is "how do we fix that".

    To get there, BPT Management has to demonstrate it has all things well in hand and communicate such facts (and continue to communicate, communicate, communicate on a regular basis) to the market.

    I have put together my list of constructive suggestions/ recommendations that can be done in the short term and longer term to improve the chances of materially increasing the BPT share price.

    I do not have all the answers but I believe it is a start in the right direction.

    I really want BPT to be the "flight to safety" candidate going forward. If we can be that candidate, then we become the must have share in the oil/ gas sector and the share price gets the associate premium built in automatically. Currently, the share price is at a significant discount to analysts valuations.

    I am not suggesting that BPT Management has done a bad job (based on the half year results it certainly has not done a good job, IMHO) overall but the playing field has changed substantially in the last 3-6 months and therefore a different set of skills/ tactics needs to be thought about and undertaken.

    Always remember, the CEO's report card is the current share price.

    In no particular order:

    1. Cash is King

    "Cash is king" in this irrational environment.

    BPT does have cash on the balance sheet – but it also has a lot of fixed expenditure commitments going forward.

    IMHO, the money from the first 10% sale of BMG has been burnt away. As I have said in the past, the proceeds of $123 million should have been money in the bank (not to be touched) or used to pay down debt. If you are going to sell any assets to raise cash, let them be non-core assets.

    Cash reserves now need to be built up as quickly and as high as possible.

    In turn, BPT Management must be able to demonstrate they have costs under control.

    Discretionary expenditures need to be looked at closely.

    As part of this process, I would instigate a strategic cost review immediately. This should, of course, be communicated to the market, along with the final review results.

    There should be no sacred "cost" cows during the process.

    If one of the outcomes of the strategic review is a reduction or cancellation of the dividend, then so be it.

    2. Debt is Evil (in this market and at this time; if you are a debt hog you are getting slaughtered)

    Let us assume that the debt markets are going to be in turmoil for quite some time.

    The current bank debt of approx. $287 million needs to be repaid in the next 2 years (and or refinanced/ renegotiated).

    There has to be a forward plan to pay down its debt in a timely fashion. More importantly, this forward plan has to be communicated effectively to the market.

    The longer BPT Management stays silent on this matter …

    See point 1 above.

    3. Single and Doubles Exploration Strategy

    There are some, it would seem, within BPT that want a Company Maker at any cost. It might be best described as the "Yes, But Philosophy …". As in 'Yes, it is expensive, but it's a great opportunity for us …' or 'Yes, that's a lot to spend on exploration in one quarter, but we have too much at stake not to …'.

    I disagree with this philosophy (and it would appear, so does Mr Market).

    The intoxication of a blockbuster deal (such as Delhi) can lead to an easy sense that luck will keep on striking.

    Success tends to make you forget what made you successful, and just when you least suspect it, the big error shifts the game.

    I am all for exploration expenditure but I believe BPT should spend what it can afford and on a "singles and doubles" strategy rather than going for an apparent company maker.

    The correct execution of the "singles and doubles" strategy can be applied to Callawonga and Parson oil fields. For limited exploration spend, it now has two reasonable size oil fields on its books, coupled with a smart investment in an oil pipeline. A couple more singles and doubles like this and BPT will have replaced reserves for the year’s production!

    The "singles and doubles" is a strategy that has to be strictly applied.

    IMHO, as the Board I would apply extra financial discipline (re: "singles and doubles" strategy) to BPT Management going forward.

    4. No Acquisitions

    Now is not the time to acquire.

    Now is the time to consolidate what BPT has already and organically grow the business, in particular BMG and Delhi/ Cooper Basin assets.

    IMHO, the prize still remains Delhi/ Cooper Basin, followed by BMG.

    5. Curtail Overseas Expansion

    As I have pointed out in the past, any expenditure in overseas countries (such as New Zealand and Spain) will be quarantined for tax relief until BPT earns NZ or Spanish revenue respectively.

    This effectively makes expenditure overseas to be around 30% more expensive compared with Australian exploration expenditure.

    If BPT do not find any commercial hydrocarbons, then overseas expenditures written off comes through the income statement which will also have an adverse impact on the effective tax rate and EPS (compared to Australian based expenditures).

    I would keep overseas exploration spend to an absolute minimum, for the time being, until either cash reserves have been built up sufficiently and/or debt paid down.

    6. Exploit CSM Asset Value

    The fair value of the CSM asset is not reflected in the BPT share price (and probably never will). The question is how do you unlock that value so it is reflected in the share price?

    Given CSM assets seem to be flavour of the month, at an appropriate time when it has booked more 2P reserves (and when its value is closer to $300-350 million), I would spin off the CSM Asset as a separate company, with BPT keeping a relatively small shareholding in it (and some shareholder options). Alternatively, shop it around to companies like Santos.

    I am not for one minute suggesting we give it away, I would be looking for a premium when this happens.

    7. Sell Ramileus Gold

    BPT is an oil and gas company. It is not a diversified conglomerate or a gold investment company.

    It also takes up time of two of BPT's key people: Reg and Bob. Time better spent on Beach activities I would think.

    Once the share price improves, I would sell its full stake in RMS and use the proceeds to pay down debt.

    8. Conservative Accounting (and absolute transparency)

    Too many ASX Listed companies, in the last 3 months, have been dealt a mortal blow because they have not been conservative enough in their accounting treatment or transparent in their disclosures to Mr Market.

    IMHO, BPT Management has not been entirely forthcoming in its reporting in the last half yearly.

    9. Oil Hedging Review

    The oil hedging policy needs to be updated for the new paradigm shift in oil prices. Something clearly is not working if we have close to $50 million in hedge liabilities/ losses.

    Oil hedges, well out of the money, need to be looked at closely; and at an appropriate time closed out (remember, your first loss is your best loss).

    How many times have large gold companies closed out their hedges, in a rising gold price environment, and their share prices have taken off like a "rat up a drain pipe"? The answer, "all of them"!

    10. Investor Relations In-House

    A criticism in the past (by Intersuisse) has been that BPT has been poor at investor relations.

    The Board really needs to bite the bullet on this and bring investor relations in-house, employing a full-time employee to manage this process full-time with shareholders, brokers, analysts, media etc.

    You need an investor relations person in-house who eats, breathes and lives BPT each and every day (with unfettered access to both people and information within the Company), including attendance at all Executive Committee and Board meetings.

    An added benefit of this process is that it will add more brokers/investment houses covering the stock (Per Commsec: AWE has 14 analysts covering them; OSH 10; ROC 8; compared with our meager 4). In theory, more coverage, more recommendations, more interest, more shareholders, more demand for the stock.

    I have presented this post as a "a glass half full" version to be constructive (it could easily have been presented in a negative viewpoint).

    Would of course like to hear contrarian viewpoints from others that normally post.

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