Origin (ASX:ORG) share price crashes 8% on $2.2bn charge and FY 2022 guidance

This energy company’s shares are ending the week deep in the red…

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The Origin Energy Ltd (ASX: ORG) share price is crashing lower on Friday morning.

At the time of writing, the energy company’s shares are down 8% to $4.10.

Why is the Origin share price crashing?

The catalyst for the weakness in the Origin share price on Friday has been the release of an update this morning.

According to the release, Origin expects to recognise non-cash impairment charges of $2,247 million post-tax in FY 2021.

This comprises $1,578 million of post-tax charges relating to Energy Markets goodwill and generation assets, and a tax expense of $669 million relating to a deferred tax liability. The latter reflects the expectation of increased distributable free cash flow and future unfranked distributions from Australia Pacific LNG.

In respect to its Energy Markets and generation assets goodwill charge, management advised that this is largely to reflect a significant reduction in wholesale electricity prices. It also takes into account a contraction in near-term gas earnings as a result of higher procurement costs and subdued business customer demand.

Outlook

Given that these charges are non-cash, they won’t impact its FY 2021 Energy Markets underlying EBITDA guidance of $940 million to $1,020 million.

While that is positive, its outlook for the Energy Markets business in FY 2022 certainly isn’t. Origin expects FY 2022 underlying EBITDA for Energy Markets to fall materially to $450 million to $600 million. Management is optimistic some of this will be offset by increased earnings from Australia Pacific LNG.

A rebound is expected in FY 2023, with management guiding to Energy Markets underlying EBITDA of $600 million to $850 million. This is subject to current forward commodity prices continuing and a flow through into customer tariffs.

Origin’s CEO, Frank Calabria, said: “As previously outlined, the Energy Markets business faces significant headwinds in FY2022, though fortunately this is expected to be largely offset by higher earnings from Integrated Gas, demonstrating the benefits of Origin’s diversified business. Origin’s net cash flow from Australia Pacific LNG in FY2022 is expected to be more than $1 billion as it benefits from a higher realised oil price.”

“FY2022 presents challenges for the Energy Markets business, and we are responding by targeting significant capital and operating cost savings, including from the introduction of the Kraken platform and new low cost and more efficient retail operating model, with customer migrations to the new platform continuing to progress very well,” he added.

“The outlook for the business improves from next year, with Origin expecting to see a material rebound in Energy Markets earnings, based on the commodity price outlook and supported by disciplined cost management,” Mr Calabria concluded.

The Origin share price is down 27% over the last 12 months.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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