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A stock picker’s guide to Origin Energy Limited in 2014

After a solid 20.5% rise in its share price over the 2013 calendar year, investors in Origin Energy Limited (ASX: ORG) are no doubt wondering if the company can put in a repeat performance in 2014. While guessing the near-term movements in share prices is a game best avoided, there are a number of reasons for shareholders to be positive about the outlook for their company in 2014.

AGM Guidance

At Origin’s Annual General Meeting (AGM) in October the company reminded investors that despite improving trends in the competitive market conditions of its Energy Markets business, there would be a lagged effect before earnings recovered. Despite this lag, management suggested that the company should start to see some margin recovery from the competitive discounting which occurred during FY 2013 in the latter part of FY 2014.

While the easing of competitive pressures was pleasing, it was not all good news during the AGM. Management also informed shareholders that due to the very mild winter – which hit the first quarter of FY 2014 – lower sales volumes had been recorded that were expected to reduce earnings (at the EBITDA level) by approximately $30 million to $40 million.

Strong December Quarter

Following on from the guidance provided at the AGM has been Origin’s December quarter production report which was released last week. The report noted that production had increased by 28% thanks to higher volumes from the Otway Basin, with sales increasing by 39% due to higher average commodity prices and higher third party sales volumes (compared to the previous corresponding period).

Importantly shareholders were also informed that the Australia Pacific LNG Project (APLNG) Upstream component was 58% complete and the Downstream component was 62% complete. The company is aiming for APLNG production to commence in mid-2015.

Foolish takeaway

Just like AGL Energy Ltd (ASX: AGK), Origin’s vertically integrated structure creates multiple diversified and reliable revenue streams; it’s a major reason both are considered blue-chip stocks. Unlike AGL however, Origin’s investment in the APLNG Project also provides a significant avenue for revenue growth which arguably AGL doesn’t enjoy.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd.

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