Australia | Oct 06 2009
This story features BEACH ENERGY LIMITED.
For more info SHARE ANALYSIS: BPT
The company is included in ASX200, ASX300 and ALL-ORDS
By Chris Shaw
According to Deutsche Bank the global economy should grow by around 3.5% in 2010, well up from the fall of 1.2% it expects for this year. This pick up in growth should flow through to stronger demand for oil but as the broker notes, supply growth has also been solid and inventories remain at very high levels.
Given these expectations the broker now expects the oil price to average US$65 per barrel in 2010, up from its previous estimate of US$55 per barrel. This suggests little change from current price levels, reflecting its view high inventories and substantial OPEC production capacity, as well as the chance of increased economic headwinds sometime next year, imply continued downward pressure on the oil price.
This puts the broker below consensus with respect to 2010, as it notes the market at present is expecting an average oil price next year of US$75 per barrel. In 2011, consensus calls for an average of US$80 per barrel and the Deutsche analysts concur given their confidence the global economy will be on a more solid footing by that time.
Risk is to the upside in the broker’s view given the potential for further US dollar depreciation, as a weaker US dollar is generally a positive for commodity prices, while there is also scope for stronger consumption in either emerging markets or OECD nations to flow through as the economic recovery gains traction.
Deutsche Bank is not alone in revising its estimates as JP Morgan has also adjusted its oil forecasts, lifting its 2010 estimate by 2.2% to an average price of US$68.80 per barrel, which follows a 7% increase to its forecast for this year for an average of US$60.80 per barrel. There is no change to its 2011 estimate of US$70 per barrel, while Macquarie has not adjusted its numbers for either year and is forecasting prices of US$71 per barrel and US$80 per barrel respectively.
At the same time as oil prices forecasts have been adjusted, so too have foreign exchange estimates, with the biggest change being an increase in the expected average Australian dollar/US dollar rate. JP Morgan has increased its estimate for the currency pair this year to US77.7c from US73.2c previously, while in 2010 its forecast has been increased to US80c from US75c.
Similarly Deutsche Bank has adjusted its forex estimates, lifting its 2009 number 3% to US76.7c and its 2010 number by 7.2% to US83.4c. In 2011 the broker has lifted its estimate by 6.3% to US80.4c. Combining the changes into models means adjustments to the earnings forecasts of stocks in the oil sector for both brokers, though the changes have gone in somewhat opposite directions.
For Deutsche Bank, the changes to its model sees its earnings estimates largely move higher across the sector in 2010, while in 2011 its forecasts have been reduced almost across the board. At JP Morgan, in contrast, forecasts have been reduced for all the stocks it covers in the sector in 2010 leaving the broker’s numbers lower than consensus even after normalising for consensus oil and foreign exchange estimates. Changes to estimates by Macquarie have been far smaller, especially in both 2010 and 2011.
In terms of company earnings forecasts JP Morgan has cut its earnings per share (EPS) estimates for Woodside ((WPL)) this year by 1% to 164.7c and in 2010 by 7% to 143.9c, while Deutsche Bank has lowered its forecasts by 6% this year to 196c but lifted its FY10 number by 8% to 195c. Maquarie’s EPS numbers stand at 134.7c and 162.6c respectively, its change being an increase to its profit forecast this year of around 10%. Consensus EPS forecasts according to the FNArena database are 185.3c and 190c while the stock is rated as Buy three times, Hold four times and Sell three times, while the average price target is $48.06.
For Santos, JP Morgan has reduced its estimate this year by 3% and next year by 13% to EPS forecasts of 29.6c and 27.5c, while Deutsche has lowered its number by 12% this year to 26c but lifted its 2010 forecast 21% to 23c. Macquarie is forecasting EPS of 23.5c and 27.9c, while the database shows consensus estimates of 30.4c and 39.2c and a total of seven Buys, one Accumulate and two Holds and an average target price of $17.88..
Oil Search ((OSH)) is now expected to generate EPS of US11.6c this year and US6.7c in 2010 according to JP Morgan, while Deutsche Bank is forecasting EPS of US10.5c and US6.3c and Macquarie is at US8c and US12.2c. The database shows seven Buy ratings and three Holds on the stock, with an average price target of $7.21.
Estimates for Arrow Energy ((AOE)) have also been adjusted by more than one of the brokers too account for their model changes, with JP Morgan adjusting its FY10 EPS number to 2.7c and its FY11 number to 4.6c. Deutsche is forecasting EPS of 6c this year and 9c in FY11, the database showing one Buy, one Sell and five Holds and an average target of $4.64.
JP Morgan has lifted its EPS number for Australian Worldwide Exploration ((AWE)) by 31% to 1.1c this year, the change looking more significant than it is as it is coming off a low base. For FY11 the broker has lowered its number by 12% to 9.6c, while Deutsche Bank is forecasting 24.5c and 8c and Macquarie is at 26.3c this year and a loss of 3.5c in 2010, the forner being lifted by 24%. According to the FNArena database the stock is rated as Buy seven times and Hold twice, with an average target of $3.28.
Roc Oil is covered by both Macquarie and JP Morgan and the former is forecasting EPS of 2.8c this year and 5.2c in 2010, while the latter has reduced its forecasts by 6% and 52% and now expects EPS of 4.5c and 0.9c. Overall the stock is rated as Buy three times, Hold once and Sell three times with an average target of $0.76.
Both brokers also cover Beach Petroleum ((BPT)) and JP Morgan has lowered its EPS estimates by 17% and 15% respectively for 2009 and 2010 to 1.1c and 7.5c, which compares to Macquarie’s forecasts of 6.3c and 9c, its 2009 number being increased by 7%. The database shows four Buys and one Sell on the stock with an average target of $1.02.
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