ORG is a vertically integrated energy company with oil and gas production.
ORG has 4.4 million retail LPG customers in Australia and the Pacific. ORG has an effective interest in approximately 5,900 MW of generation capacity. The firm is currently the largest producer of coal seam gas in Australia.
Australian electricity retailers are facing decreasing demand for electricity in the market. They also face pressure from small-scale renewable technologies especially solar. Solar reduces consumer’s demand for grid electricity.
The estimated intrinsic value will rise to around $24 by FY18E. The current share price is largely driven by the APLNG project.
We think the electricity business has largely troughed in FY14 and margins will improve for the next few years. The gas business will see uplift from re-contracting and additional sales volumes in FY15 and FY16.
APLNG has 13K PJ of gas resource not yet slated for development. ORG’s 13.7% interest in the Cooper Basin might lead to shale and tight gas reserve upgrades.
ORG's electricity business could significantly improve if potential deregulation happens in NSW and QLD. And if global policy shifts to encourage electricity consumption as a result of diminished climate change concerns.
The risks are with the LNG/gas projects being either late and/or over-budget. This could undermine ORG's financial position. It will likely cause ORG to raise either equity or debt to cover the additional capital expenditure.
At the current price it has a gross yield of 5% and a potential upside of 22%.
For more information about Origin Energy Limited (ORG) please contact us on 07 4771 4577.