ORG

Origin have been a good beta play on energy, and the stock is up 50% from the lows. But the 5 pager that accompanied the result does a good job of listing the uncontracted coal prices as a key risk to the outlook…

…and whose impacts have (in part) dealt a blow to the energy market EBIT…

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…and here’s what coal prices look like (Newcastle, bottom row). Since the update, coal prices have simply exploded.

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This would suggest that downgrade risks have risen considerably.

On the revenue side, all of ORG’s leverage to high oil prices is an FY23 story, due to a fully hedged FY22 book.

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Now, ORG’s hedging strategy, and really everything that is shoe-horned in between EBITDA and gross operating cashflows, is essentially impossible to predict, as a company outsider.

I’m not all that sure it is easy as a company insider, either.

Consider that on the broker call (at the ORG result) the most common “flavour” of analyst questioning was just how profitable, or otherwise Eraring was, and the subsequent downgrades that followed the announcement of early closure reflects the realisation that profitability was likely much lower than expected.

This coal price “panic spiral” will have only exacerbated that vulnerability.

So, ORG might still be an excellent way to play the energy security story, and the tight oil and gas market dynamic.

Equally, plenty of UK electricity retailers have gone bust over the past 6 months, caught in a squeeze where retail tariffs (electricity prices) cannot be easily revised up to consumers (who are often locked in for the year) against spiralling raw material input prices.

Weighing the two up, we decide that our conviction is not what it once was.

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