Origin Energy Ltd (ASX: ORG) shares had a difficult time on Thursday.
The energy giant's shares ended the session 9.5% lower at $9.60.
Investors were hitting the sell button following the release of its FY 2024 results.
Although Origin Energy reported an impressive 58% jump in underlying profit to $1.18 billion, this was overshadowed by weaker than expected guidance for its Energy Markets segment.
This side of the business is expected to achieve EBITDA of $1.1 billion to $1.4 billion in FY 2025. The midpoint of this guidance range represents a 17% miss to consensus expectations of $1.45 billion.
Results reaction
Analysts at Goldman Sachs were a touch disappointed with the company's results. The broker said:
ORG reported softer FY24 results than expected with A$3.53 bn underlying EBITDA 5% below our estimates and Visible Alpha Consensus Data, impacted by lower electricity margin and higher Energy Markets cost to serve. Higher Energy Markets costs are expected to prevail as inflation headwinds, bad & doubtful debt and regulatory costs limit ORG's ability to deliver a A$200-250m cost reduction target by FY25, now targeting a A$100-150m reduction from FY24 to FY26.
The higher costs contributed to FY25 Energy Markets EBITDA guidance between A$1.1-1.4 bn compared to our prior estimate of A$1.35 bn, though mid-point 17% below Visible Alpha Consensus Data of A$1.45 bn where we have seen risk of negative earnings revisions to consensus Energy Markets earnings compared to company targets presented in June. A final 27.5 Acps dividend was declared in line with our estimates though 9% below consensus.
In light of this, it isn't overly surprising that Origin Energy shares crashed deep into the red.
However, the good news is that Goldman Sachs believe that this has created a buying opportunity for investors.
Buy Origin Energy shares
In response to the company's results, the broker has retained its buy rating with a trimmed price target of $10.75 (from $11.25). Based on the current Origin Energy share price of $9.60, this implies potential upside of 12% for investors over the next 12 months.
And with Goldman now forecasting a 60 cents per share dividend in FY 2025, which equates to a 6.25% dividend yield, the total potential return stretches to over 19%.
Commenting on its buy recommendation, the broker said:
ORG is one of Australia's largest energy retailers, holds a 27.5% interest in Australia Pacific LNG, and a 23% interest in Octopus Energy. We are Buy rated on ORG considering (1) Discounted valuation with diversified earnings with APLNG supporting strong free cash flow and returns, (2) Standout gas supply portfolio and firming generation fleet, (3) Growth opportunity through Octopus Energy & Kraken.
