Origin Energy Limited (ORG)

By Jason Fittler

I last looked at this company back in December 2014 with a view to accumulating the stock if you had a long-term outlook. 

Since then the company share price has been quite volatile, so too has the price of Oil. However, the market has also changed considerably in the past 6-months. The banks are no longer the sweethearts of the market. So we need to look towards the materials and energy sectors to find growth.   

ORG is currently trading around $12.75.

Our price target has moved up from $14.30 to $15.80 providing expected growth of 26%. 

We note that there will continue to be headwinds in the short-term as competition in this sector has lead to intense price competition. 

However are expecting income to improve later in the year when ORG starts shipping from its APLNG joint venture in New Zealand.  

ORG has also announced some cost cutting measures that appear robust and achievable which will assist in improving their cash flow. On top of this we also expect to see a sale of its 50% stake in Contact Energy which again with firm up the company. 

Exchange rate weakness and deregulation in electricity in NSW and QLD have the potential to be key earnings drivers for the company. 

We will continue to watch the oil price for weakness as a pull back to recent lows will have an impact on the earnings and short-term price target. 

Forecast dividends for 2016 financial year are 4.2% and expected to increase to 6.8% in 2017 financial year. 

At present, there is no franking on these dividends.  As the chase of the high dividend that the banking companies provided starts to cool we need to start looking for more growth in the portfolio which still has a solid income stream. 

ORG is a long-term buy for income and long-term growth. 

ORG is a core holding for portfolios with a long term view.