Origin Energy Ltd (ASX: ORG) shares have been in the spotlight this week.
That's because on Monday, the energy giant released an update on its guidance for FY 2025.
Unfortunately, it was a bit of a mixed bag with an upgrade to its Energy Markets guidance but a disappointing cut to its earnings expectations for the Octopus business.
Let's see what the team at Macquarie Group Ltd (ASX: MQG) is saying about the company following this update.
What is Macquarie saying about Origin Energy and its shares?
According to a note, the broker wasn't overly surprised with the updated guidance for the Energy Markets business. In fact, it highlights that its new guidance range puts its earnings largely in line with consensus estimates. It said:
The lower end of EM EBITDA guidance was raised to $1.3bn, bringing the range to $1.3-1.4bn. As consensus was at $1.32bn, the midpoint represents a ~2.3% upgrade, reflecting gas strength and some better outcomes for STCs than ORG estimates. In addition, final DMO/VDO outcomes are marginally better into next year for pricing outcomes compared to the draft.
However, this was more than offset with the bad news relating to the Octopus business. Its analysts add:
Octopus cut earnings expectations by ~£220m, which is the second downward revision. Around £56m is explained by finalising amounts owed by the government from 2023 to a lower amount (non-cash), ~£50-60 million is associated with more costs from Energy Services and the nonUK rollout, and a residual £110 million from weather impacts.
Looking at UK energy data, there was a material wind drought in March and April, and since Octopus is 100% renewable, we think Octopus had to cover its shortfall by buying more spot gas generation, along with additional REGOs. The gas book was also impacted by reduced gas demand.
In light of the above, Macquarie continues to sit on the fence when it comes to Origin Energy shares. It has retained its neutral rating and $10.00 price target on them.
Based on its current share price of $10.51, this suggests that downside of 4.9% is possible between now and this time next year. And including dividends, the total potential 12-month return is broadly flat.
The broker then concludes:
Maintain Neutral. EM market upgrade is minor and was anticipated. APLNG value is impacted by oil. Octopus "land value" is unchanged as energy service drag should unwind. Kraken's recent success is positive to the valuation.
