Origin Energy Limited (ORG)
BUY

Little to see here

 31 Jul 2023
Sector: Energy

4Q23 PRODUCTION REPORT

Need To Know

  • LNG volumes improved in 3Q, with lower revenues given oil price fall
  • Electricity volumes +1% FY23. Weakness in retail, offset by strength in business.
  • A clean quarter of operating performance. Investors' focus remains on regulatory approvals for the Brookfield takeover. 

Investment Implications

Clean 4Q23 from ORG across both APLNG and electricity generation assets should leave ORG still in line to deliver a strong earnings performance for FY23E.

APLNG production came in at 674PJ for FY23m vs guidance of 660-680PJ. Cash distribution for FY23 of $A1.5bn was received in the quarter.

The 4Q presents no threat to upgraded earnings guidance given in May 2023 for $950m to $1,200m for underlying Energy Markets EBITDA (predominantly driven by strength in the UK Octopus business). The upper end of the range is likely less achievable given softer volumes in 4Q in the Energy Markets business for both electricity -9% and natural gas -20% (4Q vs 3Q). 

Investment View

The main game for ORG is the proposed all-call cash takeover from Brookfield.

In our view, the ~$9.00 price is a knockout price for ORG, despite the three earnings upgrades the company has pushed through since December 2022.

Various approvals need to be secured before going to a shareholder vote later this year. Approvals from the ACCC (determination due September) and FIRB (expected 4QCY23) remain the most contentious. We would not be surprised to see the ACCC require some small asset divestments to gain approval. 

On balance, with Brookfield’s promise to accelerate energy transition expenditure, we expect FIRB will approve.

Using a 0.68 AUDUSD rate, and assuming the deal is closed before November 2023, Brookfield’s Offer is valued at $9.06, assuming a 75% franked second-half dividend. This equates to a gross total return in the mid-single digits. A ticking fee of $0.045 per month is payable after November, should the approvals remain outstanding. Retain the Hold rating.

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Stock Overview

Share Price

Company Overview

Origin Energy is a leading energy retailer and power generation company. ORG explores for natural gas reserves and is increasingly using renewable technologies in its portfolio.

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