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Origin faces downside surprises despite strong result

Glenn Freeman  |  16 Aug 2018Text size  Decrease  Increase  |  
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Origin (ASX: ORG) posted $838 million in underlying net profits after tax for the financial year ending 30 June, doubling its 2017 result, but still undercut Morningstar's expectations.

Statutory NPAT of $218 million for the year put the company back in the black in the year, compared to a $2.2 billion loss last year, when it was hit by impairment charges.

Origin management also signalled it would return to dividend payouts this financial year, though the final dividend wasn't declared.

Morningstar senior equity analyst Adrian Atkins applauded the result, despite its failure to meet expectations.

"It's a strong result with underlying NPAT up 110 per cent … but it was a little below our expectations due to higher corporate costs and a slightly weaker-than-expected result from the integrated gas divisions," Atkins said.

LNG gas energy Origin

Origin's LNG gas export business delivered weaker results than anticipated

These weaker results were primarily within its APLNG liquefied natural gas export business in Queensland, "though the utility business was in line with expectations and guidance", Atkins added.

Underlying earnings in the integrated gas business rose 67 per cent to $1.25 billion, underpinned by record production at APLNG.

"The market didn’t like management's guidance for EBITDA in the utility business to fall around 6 per cent in fiscal 2019, mainly because of competitive pressure,” Atkins said.

Political stoush over power pricing

The result comes amid increasing political pressure on energy sector players to reduce power prices to cut household electricity bills, after years of steep price growth.

"Considering medium term headwinds from government policy to improve utility bill affordability, it’s hard to see where earnings growth will come from in this division,” Atkins said.

Atkins said another “negative surprise” was Origin’s higher-than-anticipated maintenance capital expenditures at its LNG export business.

Signalling a return to dividends, Origin chairman Gordon Cairns said the company had materially reduced debt and lifted business performance, and was now in a “much stronger financial position and more resilient to commodity cycles.”
"Subject to board approval and no material adverse change in business conditions, our medium-term outlook supports recommencement of dividends in FY2019," Cairns said.

For 2018/19, the electricity retailer expected underlying profit to be higher and debt lower.

It expects the energy market segment to report underlying earnings of $1.50 billion to $1.60 billion.

Australia Pacific LNG's production for the financial year is expected to be between 660-690 petajoules and is targeting operating break-even of $US22-26 per barrels of oil.

Origin shares were trading at $8:90 at time of publication.

Origin Energy turns FY profit:

* Net profit $218m vs $2.2b loss

* Revenue up 7pct to $14.8b

* No final dividend, unchanged

 

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Glenn Freeman is senior editor, Morningstar Australia.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is senior editor for Morningstar Australia

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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