Origin Energy is a holding in our portfolio, based on the strong anticipated earnings coming from the group’s investment in the Australia Pacific LNG project.
The result announced today shows an increase in profit from the APLNG of 40% plus. Overall group earnings are ahead of market consensus at $1bn and the company declared a $0.15 dividend.
Origin Energy is under Algo Engine sell conditions, however, we see value emerging from a fundamental analysis perspective. This should lead to a switch in the algo model from sell to buy in the near future.
The key positive is the strong cash generation from the APLNG project, which has led to the de-gearing of the company balance sheet. The next key driver will be the reinstatement of the dividend policy which will have the stock trading on a forward yield of 4.5%.
We expect the future dividend payments to steadily increase, which will help support the share price.
Within the Energy sector we like Woodside Petroleum and Origin Energy as our preferred exposures.
WPL offers 5% franked dividend yield and when combined with a covered call option, we’re generating 10% cash flow whilst allowing for a moderate level of capital growth.
ORG offers appealing capital growth prospects as the company pays down debt and reinstates a more progressive dividend policy.
Strong oil prices and increasing LNG production numbers are tailwinds that are likely to continue for ORG. Capital expenditure is also tracking lower than guidance and these factors combined are helping to add to group cash generation.
Origin Energy is under Algo Engine sell conditions, however, we’ve been expecting stronger earnings to support another leg in the share price rally.
ORG reported its 1H19 with EBITDA of $1.73bn, which is ahead of market consensus. The dividend was reinstated at $0.10 per share.
We see the balance sheet improving which will lead to ongoing increases in the dividend. Based on FY20 earnings we have ORG now trading on a 5.5% yield.
We’re sellers “short term” on a push above $8.00 in ORG.
Amcor reports on Monday, we expect the earnings result to support the current share price rally. AMC has been a high conviction call, expressed on the blog and in the “Opportunities in Review webinar”.
Bendigo Bank, (BEN) reports on Monday, we’re cautious of this name and see the money being made on the short side.
Origin Energy (ORG) reports next Friday, we feel the LNG related income will surprise on the upside.
For more detail on the earnings season, register for Monday’s Opportunities in Review webinar.
Over the last 24 hours, our ALGO engine has triggered sell signals for both Oz Minerals and Origin Energy.
Both OZL and ORG have been longstanding components in our ASX model portfolio.
As illustrated in the summary below, ORG returned a respectable 30.93% over the 584 day holding period and OZL returned a whopping 144.21% gain, including dividends, since July of 2015.
Both of these names have been popular with investors and we’ll update with current ALGO signals in the near-term.
We recommend investors begin accumulating Origin Energy at current levels.
The company will reinstate their dividend in February and the current sell-off will likely prove to be a substantial low.
We recommend accumulating Origin on the current share price pullback
Buy zone $7.50 – $8.00.
We will update the initial upside target in a future posting once the stock re-establishes upside momentum.
Origin Energy has sold off due to a slightly lower earnings and the ACCC intervening into retail electricity pricing.
At $8.00, ORG looks compelling value and we recommend accumulating the stock within the $7.50 – $8.50 range.
Origin continues to form “higher high and higher low” price structures and remains one of the best performing stocks in our model portfolio.
The recent 4Q production report helps support the earnings recovery and we feel the share price trades within the $9.50 – $10.50 range.
4Q18 revenue of A$570 million was ahead of consensus with higher volumes and higher realized domestic LNG prices.
FY18 revenue is forecast at $15 billion, EBITDA $3 billion, EBIT $1.5 billion generating EPS of $0.55 per share.
In FY19 we expect earnings to grow by 20% and the company to payout 50% in dividends, placing the stock on a 3% forward yield.
In FY20, both increasing profit and payout ratio will then lift the dividend to $0.60 per share placing ORG on a FY20 yield of 5.5%.