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Stock of the week

Provided by Morningstar

Origin Energy Limited (ORG)

Recommendations

Buy

Investment ratings

ORG is positioned in the competitive rather than regulated energy segment. Integration of exploration, production, generation and retail of gas and electricity lifts the range of development opportunities and reduces risk. Strategy is to explore and develop gas where easy to market. The country's largest coal seam gas reserve holder is leveraged to potential export parity pricing. Financial objectives are steady and predictable cash flows and EPS growth of 10-15% pa. In the five years to FY10, average annual EPS growth was 10.0%. A number of new projects will produce over the next few years. In future expect a 60% payout thanks to ConocoPhillip's US$5bn up-front cash injection for 50% of CSG. Suitable for investors seeking a medium risk energy exposure with growth potential.

Recent Analysis

Adjusted FY10 NPAT rose 10% to $585m, marginally ahead of our $570m forecast. At the divisional level, a stronger than expected Retail performance offset weaker than anticipated E&P, Generation and Contact Energy results. Retail enjoyed a 9% jump in revenue on the back of higher sales volumes in natural gas and LPG and tariff increases for natural gas and electricity. The benefits of the Queensland Competition Authority decision in June 2009 were in evidence. Electricity sales were lower on weaker average demand and churn rates increased with a net loss of customers. But this proved only a partial drag. Growth in solar sales was also strong. All in all, a solid ORG result, close to expectations though at the lower end of long term financial objectives of 10-15% EPS growth. CEO Grant King guides a 35% increase in underlying group FY11 EBITDA and 15% increase in underlying EPS.

Previous close	52 week high	52 week low
$15.50	$17.94	$13.85
Sector
Energy
Market cap
$13,658 Million

Total shareholder return (avg annual rate)
1yr	3yr	5yr	10yr
-2.0%	18.5%	19.7%	27.4%

Earnings and dividends forecast (cents per share)
	2011	2012	--
EPS (c)	69.4	84.0	92.9
PE Ratio (x)	22.3	18.4	16.7
DPS (c)	50.0	50.9	55.6
Div Yield (%)	3.2	3.3	3.6

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