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Investing.com - JPMorgan has downgraded Beach Energy Ltd (ASX:BPT) (OTC:BEPTF) from Neutral to Underweight, while reducing its price target to AUD1.05 from AUD1.45.
The downgrade follows Beach Energy’s fiscal year 2025 results, which JPMorgan described as in-line with market forecasts on key financial metrics. The company’s final dividend exceeded expectations, though the full-year payout ratio remained below Beach Energy’s targeted 40-50% range.
Beach Energy’s FY2026 production guidance aligned broadly with expectations, with the range largely dependent on the ramp-up of the Waitsia project. However, capital expenditure guidance came in worse than anticipated, primarily driven by higher sustaining capital expenditure requirements.
JPMorgan forecasts negative free cash flow for FY2026, with over $1 billion in total capital expenditure planned. This would push the company’s gearing toward the top of its target range and raises concerns about its ability to maintain the targeted dividend payout ratio.
The investment bank cited several challenges facing Beach Energy, including pro forma gearing at the top of its range, negative free cash flow expectations, a rapidly declining reserve life, and the need for debt-funded acquisitions to extend reserves, which adds execution risk to the company’s outlook.
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