Origin Energy Stategic Positioning

As stated in other threads I much prefer ORG to AGL, time (so far) has proven me correct that AGL is a clear value trap.

For ORG the situation is less clear, mainly because ORG is a blend of being a significant gas and electricity energy provider.

However, with today's updated profit guidance announcement, I think there is a risk that the market might still be over estimating future profits for ORG. The main hit seems to be the reduction in wholesale prices impacting the Energy Markets EBITDA.

We know from the clarity of AGL profit guidance announcements that the reduction in wholesale electricity prices is going to provide another step down in Energy Markets EBITDA for AGL in FY22. ORG has not been as explicit in its updated profit guidance (essentially only referring to FY21, rather than extending any commentary into FY22).

My thought process now, is that given todays announcement by ORG which highlights a forecast reduction in EBITDA for Energy Markets from around $1250 (rough market consensus) to $1,000 - $1140 (roughly a $150m reduction + $100m in cost savings = $250m underlying pre cost savings) implies that the negative impact to EBITDA for ORG is quite similar to AGL. If one follows this chain on thought, then another hit is still to come in FY22.


The saving grace for ORG in my opinion is that its total EBITDA composition is roughly roughly 50/50 (it moves around year to year) between Integrated GAS and Energy Markets.

Market updates are suggesting that the Integrated GAS is progressing quite well (given the known problems already being factored into the share price by the market).

A very quick over view of segment based EBITDA: (pre todays updated profit guidance)

FY20 FY21 FY22
Integrated Gas $1741 $1088 $1688
Energy Markets $1459 $1260 $1200
Corporate ($60) ($80) ($76)
Underlying EBITDA $3140 $2273 $2809

From todays updated profit guidance: Energy Markets guidance is now reduced to $1,000- $1140.

So the key to ORG valuation in my opinion:
What will be the FY22 new updated Energy Market EBITDA?
Will the Integrated GAS FY22 EBITDA assumed by the market come to fruition (market is forecasting a big turn around).