Falling profits don't always spook investors. Just ask Origin Energy Ltd (ASX: ORG) as it share price jumped even it reported a big drop in half year profit.
That wasn't enough to stop the Origin share price from rallying 2.2% to $8 in after lunch trade, which is significantly ahead of the 0.5% gain by the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.
Its outperformance also stands in contrast to its peers. The AGL Energy Limited (ASX: AGL) share price inched up 0.1% to $21.09, while the Woodside Petroleum Limited (ASX: WPL) share price added 0.7% to $33.46 and the Santos Ltd (ASX: STO) slumped by an equivalent amount to $8.12.
Big drop in profit
Origin's statutory net profit crashed by a quarter to $599 million as total revenue declined 12% to $6.73 billion for the six months to end December 2019.
Even if you excluded unflattering one-off items, the underlying net profit is down by nearly 11% to $528 million.
But investors aren't fazed for a few reasons. The first is that Origin's Integrated Gas Division is firing – and in a good way.
Lighting a fire under the stock
This is thanks to the Australia Pacific LNG (APLNG) joint-venture, of which Origin is a member. The gas project delivered record production and higher revenue. It's the key reason why the division's underlying earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 7%.
Investors can expect more good things from Integrated Gas. The company said its cost guidance for the division improved and that APLNG will likely hand out a cash distribution of $1.1 billion to $1.3 billion to Origin.
The company's stake in APLNG is a key differentiating factor between the company and rival AGL. While Origin's retail and power plants division (called Energy Markets) is under the pump, like AGL, it has the gas export project as a counterbalance.
Early signs of stability in retail business
But in a sign that the Energy Markets division may be turning a corner, management reaffirmed its FY20 underlying EBITDA guidance for this part of its business.
"We are implementing actions to improve the profitability of our retail business, by enhancing the customer experience, simplifying our processes and growing new revenue streams," said Origin's chief executive, Frank Calabria.
"In addition to the $15 million reduction last year, cost to serve reduced by a further $28 million in the half, putting us on track to achieve the targeted $100 million in savings in our retail business by FY2021."
Big lift in dividends
If this isn't enough to put a smile on shareholders' faces, management increased its interim dividend by 50% to 15 cents a share. Not a bad show of confidence about its future despite the drop in interim profits!
Management left Energy Markets Underlying EBITDA unchanged at $1.4 billion to $1.5 billion. Production at APLNG is expected to be at the upper end of the previously guided 690-710 PJ (100%) range.
