price drop warranted or just short selling????, page-4

Pretty much agree investor2009. I think the big fear is APLNG (and the funding requirements for it) even though it's in by far the best shape of the Qld CSG-LNG projects in terms of Reserves, and is also the only one not to have suffered a big cost blowout and/or delay.

The other reason it's been bad in the last few months is the full-year results forecast 'only' 10% EBITDA growth this year and a flat underlying profit.

I don't think the continued negativity is particularly warranted, for many reasons.

First, the div yield at $11 is 4.5% fully franked which is actually pretty decent compared to most of the ASX20 and its peers - higher than STO, WPL and AGK (just). If you take out the insurers and banks, only TLS and WES out of the ASX20 pay a better div yield than ORG!

Second, ORG board has a dividend policy of the greater of 50 cps or 60% of underlying EPS. Underlying EPS for the full year was 82.6c and 60% of that is 49.6c, meaning that if ORG can increase earnings even marginally, the dividend should start going up again, after being stagnant since 2008.

Third, APLNG is usually valued at around $6.50 to ORG. Take that off $11 and the rest of the business is apparently worth $4.50. This is significantly lower than ORG's SP before the CoP buy-in that created APLNG, which was around $9. The last time ORG was $4.50 was at the end of 2003. Since then the NSW assets purchase has occurred which brokers have widely regarded as a real bargain for ORG and one which has significantly raised earnings. APLNG also has 13 TCF in reserves which is easily the best of the CSG-LNG projects, with more to come no doubt.

Fourth, there are some good prospects in the international upstream business coming up. Mbawa was sub-commercial by itself but could form part of a wider gas development, and there are exciting wells to be drilled in Vietnam and off NZ in the next two years or so.

Offset against that you have to keep in mind the negatives - uncertainty over APLNG, flat retail figures, flat Contact results, and writedowns in solar and geothermal.

But overall ORG looks pretty heavily undervalued to me. I am mostly investing in blue chips these days and when I look at the rest, I see:

- Banks that are arguably overvalued compared to what they have been throughout 2012 with continued issues with the sector, so I'm not investing in those
- Energy companies like WPL and STO which have poor div yields and serious issues (Browse/Sunrise and GLNG)
- Miners like Rio and BHP which have equally bad or even worse yields and are exposed to the mining bust, particularly poor prices for iron ore, coal and base metals
- Companies like TLS and WOW are up significantly in tough markets

I see potential downside of 20%+ in all these companies if we hit another correction or if Europe melts down again, and ORG is one of the few that hasn't been caught up in the bull run of the last few months, and it's hard to see it dropping too much more as long as there's no bad news from APLNG like a big cost blowout.

Just my thoughts. Everything I said may be true but unless the wider market starts to agree with me the SP will continue to underperform!