Why is the PE ratio so low on BPT?
THe answer is that you do not just use the PE ratio to value a company particularly an oil and gas company.
The valuation is based on both its profit margins and more importantly its reserves.
The issue with BPT is that over the past few years the reserves have declined particularly with the high profit western flank oil reserves.
When you look at the high level of capex that has been spent the reserves should have gone up and not down.
The valuation of the company is not based on one year its based on the life of the reserves and that currently is not great.
In 5 years time there will not be much oil left.
Offsetting that oil decline gas production is being ramped up by huge capex spend but again this will eat substantially into the gas reserves so in 5 years time unless they either find new reserves or acquire new assets the reserves will look pretty bad.
New exploration or new asset purchases will both be very costly and likely need new capital to be raised.
It's a myth that the company is generating huge surplus cash as yes it does generate healthy cash but it's almost all being used to attempt to maintain production volume by spending it on capex.
That's why they can't increase the dividend as the surplus cash nearly all goes into capex.
The market also thinks in 5 years time oil and gas demand will fall substantially due to EV's, windfarms, solar and other environmental stuff being developed.
This could cause a big fall in oil and gas prices.
Then there is the issue of how much will it cost BPT to comply with getting to net zero.
They have already flagged costs of $80m+ this year and their presentations are talking more and more about this.
Then you have globally pension funds withdrawing funds from oil gas and coal companies as they want to be seen as green funds.
Then you have the issue of bad management which plays a part in the valuation too.
Then you have sovereign risk, yes Australian sovereign risk as there is no way the current government will let gas prices go too high and they will take action to cap them by preventing gas from going overseas. It's also possible that a windfall tax on oil and gas company profits might happen or even a special environmental tax on them could also happen.
The climate change deniers will say this is all rubbish so it depends who you think is right in deciding what is a fair share price for BPT.
BPT Price at posting:
$1.56 Sentiment: Sell Disclosure: Not Held
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