Energy producer and electricity and gas retailer Origin Energy Ltd (ASX: ORG) is looking at FY 2015 as a year of transition. It will be the lead up to the beginning of its LNG export business and what the company estimates will be a step-change in revenue and earnings. Although the stock is hitting new 52-week highs, here are three reasons why it may run further.
APLNG project to start shipments next year
Once the first train of its Australia Pacific Liquefied Natural Gas project (APLNG) is complete in mid- 2015, LNG shipments will begin and the income will start to flow similar to Oil Search Limited (ASX: OSH) and the PNG LNG project which started exports in May. By FY 2017, the company expects that it will have its first full year of LNG revenue contributions, giving it a distributable average cash flow of $1 billion annually.
Expected earnings rise and share price reaction
Well before it reaches that full contribution, you could expect Origin's earnings will be up from the LNG sales and the stock will reflect that. The stock currently is priced at a 23.9 PE, which is near the top of its past average PE range.
That said, consensus estimates are for earnings to possibly rise an average annual 31% over the next two years, with earnings growth skewed towards FY 2016. If that holds true, then a 23 PE could be a fair price for that amount of potential growth. Investors may see the advantage of building a position in the stock now.
APLNG cash flows to fund other projects
The company plans to use that cash flow to fund developments it is investing in now. For example, recently it bought a 40% stake of permits in the Browse Basin that Karoon Gas Australia Limited (ASX: KAR) owns. The development hasn't started, but by the time it does the extra LNG revenues will be at hand to cover Origin's portion of the funding. This in turn can support the company's growth and earnings over the mid-term as new projects come online.
