Future Gas Demand And East Coast Supply Project Will Transform Long Term Earnings Profile

Catalysts

About Amplitude Energy

Amplitude Energy is an Australian gas producer focused on supplying domestic markets through its Orbost and Athena gas plants and associated offshore fields.

What are the underlying business or industry changes driving this perspective?

• Improving reliability and higher run rates at Orbost, supported by sulfur processing upgrades and debottlenecking work, give the company more room to direct volumes into spot markets such as Victoria and Sydney, which directly supports revenue and EBITDAX margins.
• The East Coast Supply Project aims to backfill the Athena Gas Plant with up to 90 terajoules a day of gross gas as early as 2028. This would increase group production capacity and is intended to support higher group earnings and free cash flow as existing fields decline.
• Growing demand for gas to firm the National Electricity Market, as coal plants retire and renewables increase, creates more frequent periods of higher and more volatile spot gas prices. The company is already accessing these markets, which feeds into realized prices and operating margins.
• The company controls two gas plants near major demand centers, with replacement value reportedly above A$1b, and is focused on pushing more throughput through this existing infrastructure. This can spread fixed costs over greater volumes and support net margin expansion.
• A multi year continuous improvement program has already identified around 70 initiatives, including waste, maintenance and G&A efficiencies. It is expected to produce more than A$5 million of sustainable cost reductions relative to FY '24, which directly supports EBITDAX margin and operating cash flow.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on Amplitude Energy compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Amplitude Energy's revenue will grow by 27.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -8.2% today to 11.0% in 3 years time.
• The bullish analysts expect earnings to reach A$61.8 million (and earnings per share of A$0.2) by about July 2029, up from -A$22.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 22.2x on those 2029 earnings, up from -22.2x today. This future PE is greater than the current PE for the AU Oil and Gas industry at 15.3x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.0%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The East Coast Supply Project relies on a multi year drilling and tieback program into the Athena Gas Plant. Delays in approvals, subsea equipment lead times or drilling results that fall short of expectations could push back or reduce new volumes, which would limit the uplift in revenue and earnings that is being assumed.
• Production guidance for FY '26 already factors in declining output from mature offshore Otway and Cooper Basin assets. If decline rates prove steeper than planned or new development campaigns underperform, total group production could stagnate or fall, pressuring revenue and EBITDAX margins.
• The current economics benefit from selling over 30% of Orbost volumes into spot markets like Sydney and Victoria at around A$10 a gigajoule. A weaker domestic gas market or tighter pipeline access could reduce realized gas prices and erode operating margins and earnings.
• The company is investing heavily in assets and projects that depend on maintaining very high plant reliability and low unit costs such as A$2.33 a gigajoule production cost in FY '25. Any reversal in reliability, higher maintenance needs or inflation in waste disposal and pipeline costs could narrow net margins and reduce cash flow available for growth and debt reduction.
• The ECSP and other Otway Basin opportunities are framed around strong local demand for domestic gas and the role of gas in firming the National Electricity Market. Policy shifts, faster than expected renewable build out paired with storage, or constraints on gas-fired generation could reduce long term gas demand, which would affect revenue visibility and the returns on large capital investments.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Amplitude Energy is A$3.05, which represents up to two standard deviations above the consensus price target of A$2.41. This valuation is based on what can be assumed as the expectations of Amplitude Energy's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$3.05, and the most bearish reporting a price target of just A$1.95.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be A$564.4 million, earnings will come to A$61.8 million, and it would be trading on a PE ratio of 22.2x, assuming you use a discount rate of 7.0%.
• Given the current share price of A$1.68, the analyst price target of A$3.05 is 44.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.