Origin Energy's result beat our modelling and was ahead of our expectations. The company is tracking well subsequent to the major capital raise in Oct-15, both operationally and financially (allowing for the oil price). Note: First Samuel invested for clients in the weeks after this capital raise was announced.
It was also a result that is quite messy and difficult to compare to the prior year. For instance, from 1-Mar-16 (start of operations for APLNG Train 1), interest, depreciation and tax related to Train 1 impacted (negatively) Origin's profit.
Cash flow from operations were strong, and stable year-on-year at ~$1.3b. Further assisted by asset sales (including Contact NZ), and the Oct-15 capital raising, Origin's balance sheet gearing fell from 45% to 39%.
The company did not declare a final dividend. Whilst not our preference, we do understand and accept the decision - debt repayment is being prioritised, and the company does not have sufficient franking credits to pay a fully franked dividend (and franking credits are a major benefit of dividends).
The company is forecasting earnings before interest, tax, depreciation and amortisation (EBITDA) to increase 45-60% for FY-17. This outlook is, however, ~10% lower than predicated at the half year results, which includes lower oil price assumptions impacting APLNG.
APLNG Train 2 starting in FY-17 will provide significant benefits, and the company's debt is expected to further materially reduce further. (This includes repayment of the ORGHA hybrids, which First Samuel clients own as an equity holding. These are expected to be repaid in Dec-16, providing a solid return over the less than 1 year of ownership.)