Daily ShareChat: Origin Energy

By Jenny Ruth

Tuesday 8th June 2010

Origin Energy, which owns 51.4% of Contact Energy, has delivered consistently good EBIT (earnings before interest and tax) growth since being spun out of Boral early in the decade, says Aegis Equities Research analyst Mark Taylor.

The impact of the global financial crisis (GFC) on 2009 earnings "is a minor glitch reflecting a particularly poor result from Contact," Taylor says. That was due to unfavourable weather conditions and transmission constraints.

"Importantly, Origin has consistently returned in excess of its cost of capital, even during the GFC. Main quality peers, including Woodside Petroleum, did not achieve this," Taylor says.

"Origin's earnings stream is characterised by strong and reliable cashflows from its various segments," he says. Its LNG joint-venture with ConocoPhillips will provide additional long-term potential to Origin, he says.

The company is investing for the future in a number of growth projects, particularly in generation, but he expects current difficult economic conditions will be a major factor in curbing growth in the near term.

"While we consider it unlikely that adverse weather will impact Contact as it did over (the year ended June) 2009, we do expect growth from this segment to be limited over 2010 due to ongoing weakness in New Zealand's economy."

Recommendation: Buy
(Raised from neutral after a change of analyst).

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