Still energised

RESULTS

Need To Know

• Underlying FY23 net profit beat, driven by improved earnings across all divisions
• Strong outlook for Energy Markets in FY24 before a reduction in FY25 as wholesale costs decrease
• The proposed acquisition "continues to progress through the necessary regulatory steps" and a scheme is targeted by early 2024

FY23 Result Overview (vs consensus expectations)

Revenue $16,481m vs $16,012m 

Underlying EBITDA $3,107m vs $2,907m 

Underlying NPAT $747m vs $661m 

DPS 20cps vs 23cps 

Investment Implications

ORG continues to benefit from higher wholesale energy costs and through optimisation of its energy supply portfolio. The result exceeded consensus expectations with strong operational performance across all divisions. ORG had a total customer base of 4.5m accounts (after adding 66k during the year), and completed the migration of customers to Kraken, which is expected to deliver superior service at lower cost ($200-$250m cost savings from an FY18 baseline by FY25).

The impending proposed acquisition by Brookfield and MidOcean continues to progress through the necessary regulatory steps. ORG expects an independent expert report shortly, and a scheme to be implemented in early 2024. This still remains the key catalyst for the stock.

ORG is expecting energy markets growth to peak in FY24, before cooling in FY25. Energy markets are expected to deliver underlying EBTIDA of $1,300-$1,700m reflecting higher tariffs and an increased contribution from Eraring, while natural gas profit is expected to moderate due to higher procurement costs as supply contracts reprice.

Octopus Energy continues to grow and invest in international growth and development of its service offerings. ORG's EBITDA share is expected to be lower in FY24, although with a wide range of possible outcomes, reflecting stronger retail contribution. APLNG production is expected to be between 680-710PJ (100% basis), slightly ahead of the 674PJ in FY23. ORG expect LNG trading to be between $40-60m before ramping up in the FY25/26 periods to $450-600m.

Investment View

The main game for ORG continues to be the proposed all-call cash takeover from Brookfield.

Various approvals need to be secured before going to a shareholder vote, expected in early 2024. 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. We retain the Hold rating.