BEACH ENERGY LTD | Business Analysis and Valuation
EXECUTIVE SUMMARY
Beach Energy Ltd is one of the largest energy company in the Australia. It operates in oil and gas sector. This report presents the financial analysis of the Beach Energy Ltd. This report involves analysis of the various financial statements and financial ratios. In the start, brief background, its values, vision and purpose are discussed. Then common size and horizontal analysis of Beach Energy Ltd for 5 years’ time period are presented. This reports involve various financial tools, indicators and measures to analysis the financial position of the Beach Energy Ltd. Financial analysis is very important part for measuring company short run and long run prospective. The tools and indicators addressed in this report are cash flow analysis, liquidity analysis, income analysis, solvency, and coverage ratios. Financial indicators indicate inconsistent results. Few ratios indicate positive outlooks and few show improvement is needed. In the last, the growth and risk analysis with prospective analysis is provided in the report outlining the risks posed by the company and demonstrating the company’s potential growth and development.
COMPANY BACKGROUND
Beach Energy Limited works in the domain of oil and gas. It is known for exploration and Production Company. The Beach Energy Ltd’s headquarter is in Adelaide, South Australia. Beach Energy Ltd is listed on ASX. It has regulated and non-regulated, onshore and offshore, oil and gas output from five generating reservoirs throughout Australia and New Zealand, and is a primary provider to the east coast gas sector in Australia. Beach’s array of properties comprises controlling stakes in critical oil and gas resources, including the Moomba production plant, and also a range of future opportunities for development. Beach is really dedicated to upholding the greatest level of strength, sustainability and the environment.
Fig 1. Beach Energy Ltd
Beach’s Values
Beach Energy Ltd focus on following values as a guide:
- Safety
- Creativity
- Respect
- Integrity
- Performance
- Teamwork
Beach’s Vision
“We aim to be Australia’s premier multi-basin upstream oil and gas company.”
Beach’s Purpose
“Sustainably deliver energy for communities.”
COMMON SIZE ANALYSIS AND HORIZONTAL ANALYSIS
There are two main type of financial analysis techniques i.e. vertical (common size) and horizontal analysis (Bernstein, 1999). Common-size research indicates percentage ratios. It is also known as Vertical Analysis, in which each item is compared to a base unit. Revenue is the base item in common size analysis of an income statement. In a balance sheet analysis of common size, total assets is the basis item. Following are the Common size of Income statement and Balance sheet of the Beach Energy Ltd.
Table 1. Common Size of Income Statement
|
COMMON SIZE OF INCOME STATEMENT |
|||||
|
2019 |
2018 |
2017 |
2016 |
2015 |
|
|
Revenue |
100% |
100% |
100% |
100% |
100% |
|
Cost of sales |
58% |
61% |
70% |
85% |
76% |
|
Gross Profit |
42% |
39% |
30% |
15% |
24% |
|
Other Income |
2% |
2% |
8% |
1% |
1% |
|
Other Expenses |
2% |
16% |
10% |
123% |
113% |
|
Operating profit before financing costs |
42% |
25% |
28% |
-106% |
-88% |
|
Interest Income |
0% |
1% |
1% |
1% |
1% |
|
Finance expenses |
3% |
3% |
3% |
4% |
2% |
|
Profit before income tax expense |
39% |
22% |
26% |
-110% |
-89% |
|
Income tax expense/ benefit |
11% |
7% |
12% |
6% |
19% |
|
Net Profit after tax |
28% |
16% |
38% |
-104% |
-70% |
Table 1 represents the common size of Income statement, in which cost of sales shows a decreasing trend from 2016 to 2019. Whereas, gross profit displays increasing pattern from 2016 to 2019 and this is a good sign for Beach Energy Ltd. Overall net profit after tax shows losses in year 2015 and 2016 whereas it improves in recent years. The FY19, is a blend of some good percentages i.e. cost of sale is 58%, gross profit is 42%, operating profit before financing costs is 42% and net profit after tax is 28%.
Table 2 represents the common size of Balance sheet of Beach Energy Ltd, in which total assets is the base item and all other items are compared with it. In FY19, total current assets indicates 15% of the portion of total assets while total non-current assets indicates 85% of the portion of total assets. In FY19, total liabilities shows 39% and total equity shows 61% of the total liabilities and equity. Total current assets shows a decreasing trend since past 5 years whereas total non-current assets shows increasing percentages from 2016 to 2019. Total current liabilities increases from 2015 to 2019 and total non-current liabilities shows some fluctuating values as it increases from 2015 to 2016 then decreases in year 2017 and increases in 2018, followed by decrease in 2019. Total equity also shows different patterns of increase and decrease since 2015 to 2019.
Table 3. Horizontal Analysis of Income Statement
|
Horizontal Analysis of Income Statement |
||||||||
|
2018-19 |
2017-18 |
2016-17 |
2015-16 |
|||||
|
Change |
% |
Change |
% |
Change |
% |
Change |
% |
|
|
Revenue |
810.3 |
64% |
601.7 |
90% |
101.1 |
18% |
-170.9 |
-23% |
|
Cost of sales |
433.6 |
56% |
310.4 |
67% |
-14.4 |
-3% |
-84.7 |
-15% |
|
Gross Profit |
376.7 |
76% |
291.3 |
144% |
115.5 |
133% |
-86.2 |
-50% |
|
Other Income |
17.7 |
73% |
-28.5 |
-54% |
47.8 |
996% |
-1.9 |
-28% |
|
Other Expenses |
-154 |
-78% |
130.8 |
196% |
-625.3 |
-90% |
-136 |
-16% |
|
Operating profit before financing costs |
548.4 |
171% |
132 |
70% |
788.6 |
-131% |
47.9 |
-7% |
|
Interest Income |
-3.1 |
-44% |
0.1 |
1% |
3.1 |
82% |
-4.7 |
-55% |
|
Finance expenses |
18.4 |
42% |
22.7 |
109% |
-2.7 |
-11% |
8.5 |
56% |
|
Profit before income tax expense |
526.9 |
186% |
109.4 |
63% |
794.4 |
-128% |
34.7 |
-5% |
|
Income tax expense/ benefit |
148.4 |
175% |
4.9 |
6% |
48.3 |
153% |
-109.4 |
-78% |
|
Net Profit after tax |
378.5 |
190% |
-55.1 |
-22% |
842.7 |
-143% |
-74.7 |
15% |
Table 3 represents the horizontal analysis of income statement, where change in percentages shows highest revenue percentage in 2017-18 in comparison to past 5 years since 2015 to 2019. Changes in percentages of net profit after tax indicate positive percentages in the year 2018-19 whereas changes in percentages of net profit after tax shows negative percentages in 2017-18 and 2016-17.
Table 4 represents the horizontal analysis of Balance sheet, where change in percentages shows highest total current assets and total non-current assets i.e. 39% and 145% in 2017-18. Changes in percentages of total current liabilities and the non-current liabilities are also highest in 2017-18 i.e. 282% and 381% in comparison with the horizontal analysis of past 5 years. Similarly, change in percentages of total equity is also highest in 2017-18 i.e.31% in comparison with the horizontal analysis of past 5 years. Overall, change in percentages of year 2017-18 depicts that Beach Energy Ltd performed very well in the respected year.
CASH FLOW ANALYSIS
Cash flow statement of the Beach Energy Ltd indicates that cash from operating activities is higher in 2019 whereas cash from investing activities and cash from financing activities are highest in 2018. Overall the cash balance of the Beach Energy Ltd is highest in 2019 i.e. $343.8 million.
Table 5. Cash flow Statement
LIQUIDITY ANALYSIS
Liquidity is a measure of the business’ short-term financial stability or solvency. Retaining the company’s liquidity at the standard level is very necessary to ensure the company’s systemic production. Conversely, it is necessary to remember in this setting that the company’s liquidity criteria may differ depending on the size or structure of the organization (Ahmed & Safdar, 2018). The following table 6 shows the liquidity ratios of Beach Energy Ltd for last 5 years.
Table 6. Liquidity Ratios
|
Liquidity Ratios |
2019 |
2018 |
2017 |
2016 |
2015 |
|
Current Ratio |
0.98 |
1.50 |
4.14 |
2.92 |
2.92 |
|
Quick Ratio |
0.81 |
1.30 |
3.74 |
2.40 |
2.16 |
Graph 1. Liquidity Ratios
Table 5 indicates two types of liquidity ratios i.e. current ratio and quick ratio. Both ratios depicts fluctuations in the short run solvency of the business. It is clearly visible from the graph 1 that both current ratio and quick ratio are much high in the years 2015, 2016 and 2017 as compare to years 2018 and 2019. This shows that Beach Energy Ltd was in good liquidity position in 2015, 2016 and 2017 whereas Beach Energy Ltd was quite low in liquidity position in 2018 and 2019. There are few tips related to liquidity that need to be remember i.e. too much liquidity is also sometimes dangerous for businesses. As, it restrict the business in long run and investors do not prefer to invest in these businesses. From the graph 1, it is indicated Beach Energy Ltd has high liquidity in 2017. However, liquidity of Beach Energy Ltd is somewhat on standard level in other years and this is a good sign for company, as it help company to gain the interest of investors.
INCOME ANALYSIS
The profitability ratios of Beach Energy Ltd is indicated in Table 7 and Fig 2. Here is the comparison of profitability ratios of Beach Energy Ltd and the industry. The gross margin (5 Y), operating margin, pretax margin, net profit margin for Beach Energy Ltd are better than industry.
Table 7. Profitability Margin
|
|
Beach Energy Ltd |
Industry |
|
Gross margin (TTM) |
41.37% |
45.70% |
|
Gross margin (5 Y) |
34.04% |
-23.02% |
|
Operating margin (TTM) |
41.76% |
-1953350.16% |
|
Operating margin (5 Y) |
4.95% |
-1534.21% |
|
Pretax margin (TTM) |
41.11% |
-1955154.74% |
|
Pretax margin (5 Y) |
2.39% |
-1927.09% |
|
Net Profit margin (TTM) |
29.10% |
-1955118.82% |
|
Net Profit margin (5 Y) |
1.15% |
-1939.26% |
