MENU

Why the Origin Energy Ltd share price has been soaring

What: Origin Energy Ltd (ASX: ORG) shares leapt 3.7% on Thursday in the wake of a Sydney Morning Herald report that analysts at Credit Suisse had run the numbers on the possibility that Origin may choose to split its business into two separate companies namely, Electricity Markets and Integrated Gas.

So What: It’s not the first time that the option of a split (demerger) has been discussed by investors and analysts.

In many ways the results of Credit Suisse’s analysis wasn’t particularly positive considering the investment bank concluded that a demerged group would require around $4 billion in extra equity.

A demerger is certainly worth pondering, considering the Energy Markets division achieved underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $721 million for the half year ending December 2015.

Meanwhile, the Integrated Gas division generated $137 million of underlying EBITDA for the half. This division is forecast to earn substantially higher profits as the APLNG business ramps up and the second train comes on line.

It’s also worth considering the assumptions made about the timing of a split and the oil price which Credit Suisse built into its model. The need to raise extra capital could be averted, dependent on what the oil price does from here and when a demerger could occur.

Now What: With the potential for shareholder value at Origin back in the news, some investors appear to have taken a more positive view on the value of Origin’s shares.

Adding impetus to the buying in Origin was the stronger oil price, with Brent oil currently selling for just under US$44 a barrel.

Origin wasn’t the only stock in the resource sector enjoying solid gains yesterday. BHP Billiton Limited (ASX: BHP) which has a substantial oil business rallied 5.3%, while Santos Ltd (ASX: STO) added 1.2%.

Overnight, the oil price slipped 0.9% while US stocks only eked out small gains. The lead from overseas markets might limit upside for local energy shares today.

Energy and resource share investors have experienced a tough time which commodity price crashing.

Could an ASX crash be coming too? With the ASX flirting with 5,000, some experts are predicting a market crash. Discover our Foolish experts' advice on what YOU should do in the event of a crisis -- simply click here for your FREE copy of our newly updated report, "What to Do When the Sharemarket Crashes". Click here, it's FREE!.

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.