Australia | 1:22 PM
Stronger LNG cash flow, recovering electricity prices and growing dividend potential are drawing investors back to Origin Energy.
- Investor sentiment towards Origin Energy is improving
- Improving electricity market conditions
- Analysts note potential for higher dividends
- Gas reservation scheme clouds pricing outlook
By Mark Woodruff
Investor sentiment towards integrated energy retailer and producer Origin Energy ((ORG)) appears to be turning, as improving electricity market conditions and growing dividend potential reshape the investment outlook.
The September quarter saw positive growth in electricity sales despite mild weather and Citi suggests recovering forward electricity prices brighten the outlook for battery energy storage earnings heading into FY28.
Against this improving backdrop, the broker observes an apparent reversal in investor positioning, with large short positions giving way to increasingly crowded long positions.
Citi also sees scope for higher dividends over FY27–FY28, supported by strengthening free cash flow (FCF) from Australia Pacific LNG (APLNG) and a strong balance sheet.
The broker's dividend forecasts remain above consensus and imply an attractive yield relative to peers.
Origin’s operations span Australian electricity and gas retailing, power generation, gas production and international energy investments. The group is expanding storage and renewables while maintaining reliable energy supply.
The company revealed stronger gas revenue and rising electricity demand in its September-quarter update, alongside progress on its battery rollout.
Chief executive Frank Calabria says electricity volumes, rising 1% quarter-on-quarter and 3% year-on-year, were “driven predominantly by data centre growth”.
LNG cash flow supports dividends
Origin’s 27.5%-owned APLNG project delivered a sharp increase in September-quarter revenue, strengthening the outlook for cash distributions.
APLNG revenue increased 32% quarter-on-quarter to $2.60bn, driven by higher realised prices. This represents total project revenue rather than Origin’s ownership share.
Jarden notes LNG sales volumes were flat, while realised prices rose 34%, driving a corresponding increase in LNG revenue.
The broker expects further price gains, forecasting a December-quarter realised LNG price of US$14.70/mmbtu.
The benefit of stronger LNG sales was partly offset by slightly lower-than-expected production.
Quarterly production slipped -1% to 162.8 petajoules (PJ), reflecting natural field decline and an unplanned power outage at Condabri in Queensland’s Surat Basin.
This is a coal seam gas production area within the APLNG project, supplying gas for domestic consumption and LNG exports through Gladstone.
FY27 production and combined capital and operating expenditure guidance remains unchanged.
Separately, management expects approximately $70m in post-tax cash from an APLNG transaction involving previously banked gas and related commercial arrangements.
Jarden forecasts Origin will receive $1.04bn in APLNG distributions during FY27.
Based on stronger free cash flow from APLNG, together with Origin’s robust balance sheet, UBS anticipates higher dividends across FY27–FY28.
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