The Origin Energy Ltd (ASX: ORG) share price rose 4% to $7.13 following the release of its full year results. Here's what you need to know:
- Revenue rose 16% to $14,107 million
- Net loss after tax of $2,226 million
- No dividends
- Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rose 49% to $2.53 billion
- Underlying profit after tax rose 51% to $550 million
- Outlook for 14% to 21% growth in underlying EBITDA in Energy Markets in 2018
- Outlook for gas production to rise by 7% to 16% in 2018
- Debt reduction target of below $7 billion following Lattice Energy divestment
So what?
First, Origin posted a massive $3.2 billion writedown on its carrying value of the Asia-Pacific LNG plant (APLNG) as well as its Browse basin prospects. This affected the statutory results, although underlying profit of $550 million reflected a strong improvement on the prior year. Like AGL Energy Ltd (ASX: AGL) in its results, Origin has increasingly been earning outsized profits on its Australian electricity generating and retailing business. Both companies were careful to explain at length the degree to which they help improve customer value and affordability.
My view is that with energy prices a political hot potato at present, it is essential for both companies to present a positive view of themselves lest they fall prey to regulatory changes that affect their profitability. Origin has been increasing its investment in renewables and improving the customer experience.
Management again declined to pay a dividend in light of the company's significant debt burden.
Now what?
Over the next 12 months, Origin expects to report further sharp increases in the profits earned from its energy markets division. The upcoming Lattice Energy divestment will see Origin focusing solely on its electricity retail and APLNG projects, and will lighten the company's debt burdens. Origin currently has $8.2 billion in net debt and a lighter burden would reduce the risk in the company significantly.
Still, despite the rising profits and lower debt, I'm not overly keen on Origin today.
