Morningstar

Morningstar, Inc.

Equity Bottom-Up

Origin Energy faces regulatory headwinds and increasing competition in its utility division, while the integrated gas division--mainly comprising the 37.5% stake in Australia Pacific LNG--will do well or poorly depending on oil and gas prices. Overall, we forecast earnings grow strongly this year on higher commodity prices before moderating in subsequent years. Strong free cash flows will mostly be used to pay down debt in the medium term, but once the financial position improves, this money…

No-moat-rated Origin Energy had a good first half, with underlying EBITDA up 20% to AUD 1.7 billion and underlying profit up 53% to 592 million, mainly on stronger LNG export prices and lower interest expense. EBITDA in the utility business, known as energy markets, was flat, while integrated gas EBITDA jumped 43%. Headwinds will intensify in the second half, and full-year profit growth is unlikely to be as strong. We increase our earnings forecasts for the integrated gas division on the recent…

Origin Energy represents the best value of the Australian utilities under coverage. It is higher risk than others in the sector considering its oil price exposure and relatively high debt levels. But if the oil price can stabilise around current levels of USD 60 per barrel, in line with Morningstar’s longterm forecast, or even move higher, then it should be able to narrow the valuation gap to peers. Its first-half trading update suggests the firm is tracking in line with guidance. We’ll adjust…

No-moat Origin Energy maintained its fiscal 2019 earnings and production guidance at its December investor day. We maintain our fiscal 2019 earnings forecasts but make some minor adjustments to medium-term assumptions. We remain comfortable with our AUD 7.50 per share fair value estimate, with the stock currently trading at an 8% discount.
Analyst: Adrian Atkins

The Brent oil price has fallen 28% to USD 62.5 per barrel from USD 84 in early October 2018. Lower oil prices detract meaningfully from no-moat Origin's earnings via its stake in APLNG, though we never baked in peak prices. We reduce our near-term oil price assumptions, resulting in our fiscal 2019 and 2020 net profit after tax forecasts falling by around 7%. We also slightly trim longer-term growth assumptions, and reduce our fair value estimate to AUD 7.50 per share from AUD 8. The stock is…

Australia

Origin Energy Limited is an integrated energy company. The Company is an energy retailer in Australia across electricity, gas and LPG. Origin Energy also holds a generation portfolio and fuel position and a renewable energy portfolio, as well as unconventional gas and LNG interests.

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