Origin Energy (ASX:ORG) share price leaps 6% on investment news

Origin’s investments are starting to pay off.

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The Origin Energy Ltd (ASX: ORG) share price has stepped into the green on Tuesday and, at the time of writing, is trading at $4.76.

As The Motley Fool’s James Mickelboro reported earlier today, Origin shares are on the move after the company announced a positive update regarding its UK investment in Octopus Energy.

Here we examine how the market is reacting to the energy giant’s news today.

What’s up with the company’s shares today?

The Origin Energy share price is up 5.54% with only moments of trade remaining after the company revealed the value of its equity stake in energy retailer Octopus Energy has increased substantially.

Origin strategically invested a total of 211 million pounds (A$507 million) into Octopus last year, earning it a 20% stake in the UK energy retailer. This was on a valuation of around $2.5 billion at the time.

Today’s release notes that Octopus Energy has received a 211 million pounds investment from Generation Investment Management, a sustainable investment manager.

As a result, Origin has today announced it will be investing an additional 38 million pounds in Octopus in order to maintain its 20% equity stake.

That’s because Generation’s 7% equity offer puts the valuation of Octopus at around 3 billion pounds (A$5.5 billion Australian) – considerably higher than it was 12 months ago.

So essentially, Origin has to pay up in order to keep the gains coming in from Octopus.

But there’s no need to feel sorry for Origin. Since its initial investment in Octopus, the position has grown in value to $1.1 billion, signifying a return on investment of 92% in a relatively short period of time. That’s almost break even.

Investors appear to have relished Origin’s successful return on capital and are buying Origin shares in droves on Tuesday.

At the time of writing, today’s trading volume is almost 11.5 million Origin shares changing hands, well above the 4-week average volume of 6.4 million shares exchanging daily.

Origin appears equally as satisfied with the outcome, bolstering confidence in its financing decisions.

Speaking on the announcement, Origin CEO Frank Calabria said: 

Origin’s additional investment demonstrates our confidence in Octopus’ strategy, management team and growth prospects, confirmed by GIM, which is one of the world’s most innovative sustainable investment funds. Our exposure to Octopus’ continued success is expected to be an important avenue of growth for Origin.

Origin Energy share price snapshot

The Origin Energy share price has had a horrible year to date and is currently around 1% in the red since 1 January.

Things aren’t much better over the past 12 months, during which the company’s shares have only climbed by around 5%.

This is well behind the S&P ASX 200 index (ASX: XJO)’s return of around 25% over the past year.

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The author Zach Bristow has no positions 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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