ORIGIN ENERGY (ORG) – Earnings rebound on track

Origin Energy (ORG)operates energy businesses, including exploration and production of natural gas, electricity generation, wholesale and retail sale of electricity and gas, and sale of liquefied natural gas. Origin Energy is tracking in line with our forecast for a strong rebound in earnings in FY24, mainly driven by the utility business. We have left our FY24 forecasts largely unchanged, but recent strength in electricity futures prices and oil prices has led us to lift expectations for FY25 proportional EBITDA by 10%. Longer-term forecasts are largely unchanged, and we maintain our $9 per share fair value estimate. In the utility business, known as energy markets, retail electricity sales in the nine months to March 2024 are tracking mainly in line with the previous corresponding period, while natural gas sales are down 13% on warmer weather and some business customer losses.  Over the medium to longer term, we expect energy markets’ earnings to trend lower as the eventual closure of Origin's Eraring coal-fired power station is partly offset by investment in renewables and batteries.  In integrated gas, which mainly comprises the 27.5% stake in APLNG, revenue is tracking 16% below the very strong prior period as a 20% fall in prices for liquefied natural gas exports and domestic gas offsets a 4% increase in production. In the overall scheme of things, however, FY24 is shaping up as another good year for APLNG, and Origin is likely to receive another big dividend of up to $1.4 billion. Contract LNG prices are based on the oil price with a two-to-three-month lag. With recent strength in the oil price, we expect a solid June quarter.

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