Waiting for the phone to ring

1H23 RESULT

Need To Know

• Take-over talks ongoing with Consortium
• Earnings miss due to one-off impacts, along with weak cash flow. Dividend above market. 
• FY23 earnings guidance now pointing to top end of $600-730m range. 

Take-over talks with Consortium which valued ORG at $9.00 per share (ex any dividends paid) remain active and ongoing. These continue on a non-exclusive basis with due diligence substantially complete. No comments around any material adverse matters have been found.  

Turning to the Result, a messy set of numbers for the market to wade through. Both EBITDA and NPAT have come in well below market largely due to one-off factors. Quality was also an issue, with cash flow weak on a large working capital drag. Net debt rose to $3.3bn.

This was offset by a stronger-than-expected dividend and ORG suggesting that the business is tracking towards the top end of the $600-730m FY23 earnings guidance given in late January.

The key swing factor for FY23 remains the Energy Markets division. In 1H23 the business delivered EBITDA of $148m, well below market at $270m driven by ongoing losses in the Electricity Division. To meet guidance, 2H earnings from the Energy Markets division will need to be ~$550m – a significant step up from 1H. The profitability of this division has important long-term implications for ORG.

A stronger 2H22 would enable a material uplift in the dividend. ORG commented further capital management initiatives will be considered during FY23 and beyond.  

1H Result Details 

EBITDA $1,059m vs $1,145m market

NPAT $44m vs $259m market 

DPS 16.5cps vs 15cps market

Investment View

Does the result matter given the ongoing takeover talks? Probably not. More confidence in ORG’s FY23 earnings is useful but largely insignificant from the Consortium's perspective given the long-term timelines involved. The $9.00 bid is mechanically reduced to $8.84 following the payment of the $0.16 dividend as per the Offer details.

Pulling apart a very messy result, there is the prospect of strong earnings recovery in ORG as the energy market stabilises (to a degree!). Yes, there remains heightened uncertainty for ORG for earnings FY24 and beyond given Government intervention, but we see the prospects of ORG being able to deliver >$750m of EBITDA per year vs the current 1H run-rate of <$300m.

The key catalyst over the coming months is any update on the takeover proposal. On balance we see the bid going ahead, perhaps at a lower price of between $8.00-$8.50 per share to reflect greater uncertainty around Government policy. We rate ORG a Buy.  

Figure 1: ORG has provided a guide to earnings improvement over coming years…which is clearly aimed the consortium looking at ORG