Origin Energy Limited (ORG)

By Jason Fittler

With the price of 0il falling all related companies have been hit hard over the past week.

The questions are how long will oil prices stay this low and who if any will not survive.

Origin is in a better position than most as they have a limited short-term (12 months) exposure to oil price in terms of its Profit and Loss.

ORG has just increased and extended its debt facilities at a marginally lower cost (30bps).

Whether necessary or unnecessary, whether by good fortune or good planning, the effect is to diminish near term concerns about ORG's credit rating. 

ORG revised down its guidance for cash available for distributions to A$900m from US$1bn on lower oil price moves.

We estimate this seemingly tied-in field to have potential reserves of around 250 PJ worth maybe $125m or roughly $0.11 per share.

This gives us a valuation of $14.42 with the company trading in the mid $10 range at present. 

The price target is derived with Net Present Value for APLNG and a market based Price Earnings for the Australian utility with some upside assumed given NSW deregulation.

We are not expecting to see Oil price rebound any time soon.

But ORG would appear to have been sold down below it value.

Earnings Per Share is expected to fall 2% in 2015 but recover this in 2016 with forecast Earnings Per Share up 4%. 

If you hold ORG take comfort in the fact the dividend per share should remain steady in 2015 and increase 2016.

If you do not hold ORG, you may want to look at this company as a long-term buy. As long as you have the time frame and comfortable with the volatility as I think all Oil companies are in for a tough 6-12 months.

For more information about Origin Energy Limited (ORG) please contact us on 07 4771 4577.