the case for and against beach energy

Hi all,

I'm hoping Beach holders can contribute to this thread and explain why people should/shouldn't hold Beach Energy.

It's price has been no doubt crushed lately, and people are surely wondering if its a good opportunity to buy into the shares or to sell/hold off incase it goes to the pit.

Here is the case for Beach:

Zero debt

$118m cash

Consistent dividends (currently yield is around 4%) - the company maintained its dividend during the worst of the GFC when many other companies eithe reduced or cut their dividend entirely.

Substantial franking credits for future dividends

Despite the dissapointing SP performance, the company has never been in better shape and is still more than double what it was worth when it was a disaster in 2003 and the years before that (SP was around 25c in 2003) - so clearly management has boosted the company

Shadwan will produce in the third quarter plus the oil price on average is tipped to be higher in 2010 as the global economy recovers (zooming past US$80 as we speak) - THIS MEANS that fund managers will start to price in the Beach's improved profits from Shadwan oil and higher oil/gas prices prior to the next report

No doubt the company doesn't have a super growth project like Woodside's Pluto or OSH's PNGLNG. However atleast Beach's reserves have a decent life and the company is trying to get into the shale gas space and has a lot of exploration to do.

Potential reasons why BPT underperforms:

It doesn't have a really ballsy long-term growth story (like Woodside's Pluto).

Beach is part of the small/mid-cap space - where everything is treated badly. Notice TAP, NXS, AED, NZO - they haven't been exactly good or exceptional.

But really some companies like BPT have never been stronger and at a P/E of around 10x earnings and price-to-book value of an amazing 0.56(according to CommSec) it could be a great value play.

The company is pretty much leveraged to the oil price and when the price goes ballistic this sector seems to get a fair few inflows from the fund managers - Beach shot up to $1 when oil hit US$85 a couple of weeks ago and around $1.60 when oil was past US$100.

It's not a takeover target as its assets aren't exactly mind-blowing.

In summary: Personally I think Beach is a good (not screaming) buy at this level for a short-to-medium term profit.

However over the long-term I don't think it will give you better returns than something like Woodside or Oil Search or even the S&P/ASX 200 Index itself unless Beach has success with this shale gas program or it discovers a massive amount of oil.

IMHO hold Beach if you want something that is leveraged to the oil price, has a beaten down SP, is a good value play (cheap p/e and price-to-book ratio) and if you think its gamble on shale gas will pay off.

I'll be looking to top up more if it price falls to 60c range. (My orignal purchase price was $1.44 but that has come down due to DRP).

- Vish