Origin Energy up 31% in 12 months, road show moves to Asia

Having completed an ‘international road show’ and attended the company’s AGM in October, Origin Energy’s (ASX: ORG) CEO Mr Grant King has now headed off to Asia to update investors in the Asian region about Origin’s business and prospects.

With a market capitalisation of $16 billion and with 169,000 shareholders, Origin is well and truly a blue-chip stock. The firm is the largest integrated energy business in Australia and New Zealand and boasts the largest retail customer base and the largest power generation portfolio with 6.010 mega watts of capacity.

Arguably the most exciting aspect of Origin’s near-term future is its role as a joint developer of the Asia Pacific LNGs — a two-train coal seam gas to liquefied natural gas (LNG) project. The project already has 20 years of sales contracts signed for 8.6 mt per annum of LNG with the first gas expected to be produced by mid-2015.

A chart included in the Asian Roadshow presentation highlights another division (aside from APLNG) with increased earnings potential in the future. While Victoria has operated under deregulated gas and electricity markets since 2009, Queensland deregulated its gas market in 2007 but has yet to deregulate its electricity market (this is expected to occur mid-2015), South Australia only deregulated gas and electricity in early 2013 and New South Wales is yet to begin a review of potential deregulation. As these other major state deregulate, Origin stands to benefit.

While fellow power company AGL Energy (ASX: AGK) also stands to benefit from the deregulation of state electricity and gas markets, it is Origin’s shareholders who have been enjoying the share price gains. In the past 12 months Origin’s shares have surged nearly 31% higher, while AGL’s are up just under 8%. In comparison, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has risen by nearly 20%.

Foolish takeaway

Origin’s share price outperformance can at least partly be explained by valuation multiple expansion given Origin is trading on a significantly higher price-to-earnings multiple than AGL. This higher multiple is in part a reflection of the expected step-change in earnings that will occur when the APLNG Project moves to production stage – as such this premium would appear justified.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy.

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