Is it possible that the Origin Energy Ltd (ASX: ORG) share price could rise to $6 by the end of 2021?
Brokers regularly like to update their thoughts on where they believe that Origin shares are going to be in 12 months. That's what a price target is – where the broker believes a business will be in a year from now. So, not necessarily where the broker thinks a business will be in a couple of months.
What is the price target for the Origin Energy share price?
There are several brokers out there with different ratings. One of the most optimistic, and recent, price targets is from Morgans, at $5.96. That's almost $6.
One of the main things that entered into Morgan's thoughts was the recently-announced sale of part of its stake of Australia Pacific LNG for $2.12 billion.
Asset sell-down
Origin is selling a 10% stake to global energy investor EIG. After the sale, Origin will still own 27.5% of Australia Pacific LNG. This retained stake will allow Origin to keep its seats on the Australia Pacific LNG board. EIG will get one board seat.
The divestment will not change Origin's role as upstream operator, responsible for the upstream exploration, development and production activities.
Net proceeds from this sale is expected to be approximately $2 billion after adjustments and transaction costs.
Origin's guidance for cashflow from Australian Pacific LNG for FY22 is unchanged at greater than $1 billion, net of Origin oil hedging. The dilution of 10% in the second half is expected to be broadly offset by the improved commodity price outlook.
The Origin share price rose around 4% on the day of the announcement.
What is the company going to do with the money?
Origin expects the sales proceeds to be broadly in line with the carrying value. No tax is expected to be payable as a result of this transaction.
The company plans to pay down debt with this money.
Origin CEO Frank Calabria said:
Divesting a 10% interest allows Origin to crystalise some of the significant value we have created in Australia Pacific LNG, while retaining upside to further value creation through a continuing substantial shareholding.
A diverse asset portfolio, combined with strategic investments over the past 18 months, have put Origin in a strong position to lead the energy transition. The material cash injection from this investment provides further flexibility to deliver returns to shareholders and pay down debt, while allowing Origin to accelerate investment in growth opportunities.
Other comments on the Origin share price
Morgans noted that the price paid for the EIG purchase suggests that there are projections of a stronger oil price for longer than what some investors are expecting.
Using the broker's projections, Origin is valued at 28x FY22's estimated earnings and 23x FY23's estimated earnings. The broker is currently expecting Origin to pay a dividend of $0.21 per share in FY23, which translates to a yield of 4%.
