Origin Energy share price drops on underlying profit tumbling 83%

Origin posted earnings and updated the market on its ongoing takeover this morning.

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Key points

  • The Origin Energy share price is lower this morning, dropping 0.84% to trade at $7.05 
  • It comes as the company posted an 83% fall in underlying profit, coming in at $44 million, while it boosted its interim dividend by 32% to 16.5 cents per share
  • Origin also assured the market the consortium behind an $18.4 billion takeover bid is still interested amid an extended due diligence period

The Origin Energy Ltd (ASX: ORG) share price is in the red on Thursday after the company released its earnings for the first half of financial year 2023.

Shares in the S&P/ASX 200 Index (ASX: XJO) energy producer and provider are currently 0.84% lower at $7.05 per share.

The company also reiterated that, despite due diligence dragging on longer than expected, a takeover bid posed by a consortium still stands. The consortium has now substantially completed due diligence.

Origin Energy share price gains as dividend grows 32%

Here are the highlights of the first-half report:

  • $399 million statutory profit – an improvement on the prior comparable period's (pcp) $131 million loss
  • $44 million underlying profit – an 83% fall on that of the pcp
  • $1.06 billion of underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) – a 4% decrease
  • Free cash flow came in at a $429 million loss – down from a $112 million loss
  • 16.5 cents per share fully franked interim dividend declared – a 32% increase on the pcp's unfranked offering

The company posted a mixed result this morning as its gas business outperformed while its energy markets business weighed.

The former posted $954 million of underlying EBITDA – a 10% improvement, while that of the latter fell 45% to $148 million.

Though, production at the gas business slipped 5% amid wet weather and unplanned outages, with a recovery underway.

Meanwhile, earnings at the energy markets business were hit by the under-recovery of wholesale energy costs in customer tariffs and higher fuel costs. Its retail leg continued to grow, adding 30,000 customer accounts to reach 4.5 million last half.

Australia Pacific LNG (APLNG) delivered $783 million to the ASX 200 energy giant.

What else happened last half?

Of course, the major news driving the Origin share price last half was the $18.4 billion takeover offer from a consortium including Brookfield Asset Management and MidOcean Energy.

The group put forward a $9 per share bid in November and was granted due diligence. However, its exclusivity period was twice extended before expiring, likely sparking worry among investors.

The company also sold its interest in the Beetaloo Basin last half.

What did management say?

Origin CEO Frank Calabria commented on the results driving the company's share price today, saying:

Origin has an advantaged portfolio, is positioned for growth, and provides the ideal platform for investment into the energy transition, enabling the company to capture value and continue delivering good outcomes for our millions of customers, our communities, and shareholders.

What's next?

The company expected to post higher free cash flow in the second half, helped by higher energy markets earnings and strong distributions from APLNG.

It recently revealed its energy markets business is on track to post between $600 million and $730 million of underlying EBITDA this financial year. It now expects that to come in at the higher end of guidance and to grow further in financial year 2024.

The transformation of its retail business is also progressing, with customer migrations to the Kraken platform to complete this quarter. Origin is targeting $200 million to $250 million of cash cost savings on a financial year 2028 baseline by 2024.

It's also expecting to exit its interests in the Canning Basin in the current half.

Origin share price snapshot

The Origin Energy share price is currently 5% lower than it started 2023. Though, it's still 18% higher than it was this time last year.

For comparison, the ASX 200 has risen 6% year to date and 1% over the last 12 months.

Motley Fool contributor Brooke Cooper 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 Scott Phillips.

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