There's a lot to be said for management teams that underpromise and overdeliver, or in Origin Energy's (ASX: ORG) case, meet the low end of previously downgraded guidance! Given today's 6% rally in the share price investors were obviously expecting the company to fall short of even management's low-end guidance.
On an underlying basis, net profit after tax fell 15% to $760 million from $893 million a year earlier. Earnings per share (EPS) fell by 16% to 69.5 cents per share (cps) from 82.6 cps but pleasingly for shareholders the board maintained the full year dividend at 50 cps.
Origin's underlying profit was affected by three main factors. First, by a lower contribution from the Energy Markets division as a result of subdued industrial consumption, increased solar PV penetration, energy efficiency initiatives and lower consumer demand in response to higher power prices. Secondly, higher depreciation and amortisation charges and thirdly, higher financing expenses weighed on the bottom line also.
An update on the all-important Australia Pacific LNG project, which should provide a "step change" to Origin's earnings, was provided too. The project is now 45% complete and with the accompanying announcement that Origin has executed a $7.4 billion syndicated loan facility investors should be able to breathe a sigh of relief that the company won't be forced into a capital raising to shore up its funding position for the project.
Origin's 53.1% owned entity Contact Energy (NZE: CEN) also reported this week. While operating revenues went backwards by 6.5%, underlying net profit after tax was up 14.8% to NZ$202 million. On a per share basis, underlying earnings grew 10.8% to NZ$0.277 cents per share and a dividend of NZ0.14 cents was declared. Given Origin has a market cap of approximately $14.4 billion and Contact Energy a market cap of NZ$3.9 billion. It is interesting to note that Origin's shareholding in Contact Energy accounts for around 12% of Origin's current market cap.
Foolish takeaway
Given the significant growth capital expenditure (capex), Origin is currently undertaking a valuation which focuses on free cash flow (FCF) is potentially more applicable. For the financial year 2013 FCF (pre-growth capex) was $1188 million. With a market capitalisation of $14.4 billion this places the company on a multiple of 12 times which would appear undemanding considering the pipeline of growth opportunities and the quality nature of Origin's vertically integrated assets.
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Motley Fool contributor Tim McArthur owns shares in Origin Energy.
