Should You Buy Origin Energy Ltd Shares Today?

What Happened to the Origin Energy Share Price?

Origin Energy Ltd [ASX:ORG] opened higher and gained 1.88% by 12:57pm today. The share price was at AU$12.46. The Aussie dollar was stronger and bonds were weaker on the RBA’s decision to hold rates unchanged, defying broad expectations of a cut. The All Ordinaries was down marginally during the day. Crude was up. The OPEC basket price is staying around US$57.

Why Did This Happen to ORG Shares?

Being an integrated energy producer, Origin naturally fluctuates with energy prices. After the spectacular fall in oil last year, crude is slowly recovering. While oversupply and inventories continue to weigh on the price of oil, many market participants have already called a bottom.

With a likely normalisation of the oil price in 2015, the price of ORG will also gain. A reasonable forecast for a recovery in 2015 puts oil at US$68.5 by the end of year. However, this prediction will be highly dependent on both global economic growth and OPEC supply.

Market analysts still have ORG at an average rating of ‘outperform’. In the latest interim results, revenue was down by 4% to AU$6.95 billion. Net profit was a negative AU$25 million, fallen from AU$322 million. Dividend payout continued to shine, with the company declaring 25 cents a share. Origin’s APLNG project will likely be in operation by mid-year. Depending on the prices of energy, further capex spending may go ahead on the back of strong cashflow.

What Now for Origin Energy Ltd?

For long term investors, energy prices will almost certainly reflate and the Origin’s capex spending will reduce. These factors will mean increased revenue and more retained earnings, which will translate into dividend payouts.

What investors need to do is decide on the investment horizon. For long term investors, energy players with strong fundamentals will eventually win the day. For short term investors, 2015 and 2016 will be opportunities to make gains. However, uncertainties around final company return and oversupply in the energy market will continue to affect the stock price of ORG.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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