Last May, when Australian superannuation fund Aware Super bought in, its value was put at $US9 billion ($13.5 billion). RBC Capital Markets has a $3.1 billion valuation on Origin’s now-23 per cent stake, reflecting that figure.
Octopus’ energy retailing business – run by Octopus founder Greg Jackson – has gone from holding 5 per cent of the UK market to 24 per cent.
At just nine years old it became the country’s largest energy supplier, overtaking British Gas, with one new customer every 30 seconds. It also has retail businesses in France, Germany, the US, and New Zealand.
Compelling sales pipeline
But it is in the tech arm, perhaps less well understood by Origin’s traditional investors, that questions about valuation are biggest.
Customer accounts at Kraken, whose cloud-based software platform is used now used by water utilities and broadband providers as well as energy companies, have rocketed higher, from around one million to 62.8 million by the end of December, up 22 per cent in 12 months.
That puts it ahead of schedule on its 2027 target for 100 million, which would translate to over £500 million in annual revenue, Origin chief executive Frank Calabria said last month, highlighting Kraken’s “compelling sales pipeline” and the “outstanding” growth at Octopus.
Making money out of those accounts is a work in progress, given many are yet to transfer on to the system and start paying for the service.
Still, Kraken is cash flow positive and posted profit of £34.9 million on sales of £136.3 million in the year to the end of March. The combination of profits and high growth makes Kraken unusual for a tech firm, although the earnings contribution to Origin from Octopus remains volatile amid heavy investment to scale up the energy business’s service division.
In the six months to the end of December, Origin reported a loss of $24 million on its share of Octopus EBITDA, double the prior corresponding half, and slashed its forecast for the full-year contribution.
Some analysts questioned the earnings outlook after the downgrade, while acknowledging the volatility typical of early-stage businesses.
Orad argues that growth that is already efficient enough to create positive EBITDA and a healthy – even if low - cash flow “implies very clearly long-term leverage”.
Kraken’s cloud-based technology, the driver of Octopus’ retail expansion, covers all aspects of a customer’s relations with their supplier, from billing and payments to flexible product offers, enhanced by AI.
Customers get a better experience when dealing with their utility, while utilities cut their costs to serve, it says.
But it also enabled the integration of the growing array of household devices – solar panels, heat pumps and electric vehicles – optimising charging and management while overseeing grid-scale assets such as large batteries to suit increasingly volatile demand and supply in the decarbonising grid.
“In the long run, I’ll call it next decade, I would like to see Kraken influencing the lives of one billion humans.”
In the UK, Kraken manages more than 200,000 electric vehicles, using algorithms to time when they are charged, influencing supply and demand. “Those 200,000 vehicles, the ability to shape when they connect to the grid, are equivalent to two nuclear reactors,” Orad said.
Overall in the UK, between 1 per cent and 2 per cent of the country’s GDP goes through Kraken’s platform.
“And we’re just starting,” he added. “[We have] eight billion data points going through our system every day. In two years, it will be a funny number that will be dwarfed based on what we’re getting.
“In the long run, I’ll call it next decade, I would like to see Kraken influencing the lives of one billion humans.”
Meanwhile, other emerging rivals – including Kaluza in which Origin’s rival AGL Energy invested last year – are at an earlier stage of development.
The early decision by Octopus to license the technology to its UK competitors – French giant EDF Energy and Germany’s E.ON among them – led to the decision to separate Kraken from the rest of the business.
“I’m almost the last visible move in that year-long process of operational separation,” said Orad, who joined in August after running business intelligence software company Sisense and NICE Actimize, a financial crime and analytics player.
The now almost-total separation has fuelled expectations that the restructuring will go further, with an inevitable shake-up in the shareholders – currently the same across both businesses.
Just how much Kraken could be worth standalone is the subject of speculation, but some estimates based on typical tech valuations easily overshadow that currently ascribed to Octopus.
Rough calculations using Kraken’s 2027 growth goals, and the sort of 30-times EBITDA valuations not untypical for tech firms, signal it could be worth $30 billion, The Australian Financial Review’s Chanticleer column suggested last month, admittedly attracting some scepticism.
In Australia, Kraken also has big ambitions, well beyond its existing three customers of Origin, Queensland’s Ergon Energy and Nectr, a Hanwha Energy-owned solar and battery junior.
Asia-Pacific director Mark Soper has other sectors in his sights, such as electricity distribution and water, that would increase Kraken’s presence beyond the one-third of Australian homes it already serves.
