The Origin result was essentially pre-released, but still makes for a mix bag (APLNG good, energy markets bad).
Lower wholesale electricity prices, driven by renewables, COVID related demand side impacts, and mild weather…
…have combined unfavourably with high input costs (e.g higher coal prices) to crunch margins. That margin impact will only accelerate over FY22, according to management forecasts.
The good news is that free cash flows are sufficiently strong, thanks to the APLNG distributions, to see gearing continue to come down, and for the dividend to be supported.
Overall, expectations are very low, suggesting to us a relatively easy hurdle, and with presently higher wholesale electricity and gas prices, the ability for the energy markets business to bounce back in FY23, combined with an ongoing resilient integrated gas business, represent compelling value.
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