Origin Energy raises FY23 guidance on strong gas and electricity profits

Fri 27 Jan 23, 11:30am (AEST)
A liquefied natural gas pipeline sits in the foreground; in the background, the horizon swallows an amber sun which backlights a petrochemical refinery
Source: iStock

Key Points

  • Upgraded guidance does not include any impact from the government's new coal price cap
  • Origin has already fully contracted its FY23 gas supplies before the $12/GJ cap came into effect
  • Macquarie reaffirms an Outperform rating with a $9.00 target price

Origin Energy (ASX:ORG) on Friday upgraded its FY23 guidance on the back of improved gas and electricity profits and a more reliable coal supply chain. 

The company’s shares are up around 2% in early trade.

Upgraded FY23 guidance at a glance

The upgraded guidance excludes any impact from the government’s new coal price cap and assumes no material impact from the $12/GJ cap on uncontracted gas. Origin said its gas supplies for the year had been almost entirely contracted prior to the cap coming into effect. 

Notes of interest:

  • Energy markets underlying EBITDA $600-700m vs. prior $500-600m

  • Energy markets expected to earn a return on capital employed at the top end of guidance (less than 4.0%)

  • Australia Pacific LNG production lowered to 660-680PJs vs. prior 680-710 PJs due to wet weather conditions

  • FY23-24 LNG trading EBITDA expected to be $40-80m vs. previous expectations of “slightly positive”

  • FY25 LNG trading EBITDA expected to be $450-650m vs. prior $350-450m

Broker view: Still set to Outperform

Macquarie reaffirmed an Outperform rating with a $9.00 target price earlier this week. The investment bank flagged that the Brookfield deal is set to end on 24 January and that the end of exclusivity might raise the “fear of a repricing or no offer emerging.”

“This creates downside risk for investors albeit it is not our base case,” the analysts said.

“However, corporate interest has been stirred, so we doubt the premium in the share price today will fully unwind on ending an agreement.” 

From an operational perspective, the note viewed a milder FY23 summer as a net positive and the repricing of Victorian retail gas books in February as another positive. 

Takeover bid remains in play

Unsurprisingly, the Australian Financial Review on Thursday reported that Brookfield Asset Management was in talks with funds globally to shore up the proposed $18.4bn joint bid.

The article notes that the syndicate might not be fully formed but that dynamic isn’t out of the ordinary for Brookfield.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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