Why Origin Energy Ltd Climbed 3.7% Today

Origin Energy Ltd [ASX:ORG] rose 3.77% today, to a high of $6.60 a share. But they weren’t the only energy provider that saw their share price climb.

Magnum Gas & Power Ltd [ASX:MPE] and Planet Gas Ltd [ASX:PGS], two lesser known energy providers, rallied 100% and 75% respectively.

What happened?

The Australian domestic gas industry is at a critical point. There is a shortage of gas supply projected for the next two years. The Australian Energy Market Operator said on Thursday that shortages could take place in the summer of 2018/19.

It’s not great news for gas users. As Brickworks Ltd [ASX:BKW] stated:

Including the forecast increase in electricity prices, Brickworks will pay an extra $20 million per year in energy costs by 2019 — more than twenty five percent of our Building Products 2016 earnings. And only one of the major gas retailers was able to provide a firm offer for gas in 2019.

For gas suppliers, it’s terrific news. Gas price will increase, boosting revenues and earnings for companies like Origin.

What now?

There could be opportunities in the energy sector. And Origin might be one of them. But, for the moment, Origin is not generating a profit. I’d suggest you look at companies that are instead.

An example would be AGL Energy Ltd [ASX:AGL]. They reported a $325 million profit for the first half of FY17. But I’d urge you to be mindful of their valuation. AGL is trading at 46.25-times their current earnings. That means if earnings remain constant, investors will redeem their investment in 46.25 years.

AGL’s earnings will likely increase as gas prices rise. But you’ll need to have a long-term view on the stock to make any real substantial returns.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

PS: We likely won’t see another turnaround in resources like we did in 2016. And if we do, it could be a while. Unless commodity prices suddenly move higher, earnings will likely stagnate.

That’s why some investors prefer the smaller end of the market.

Smaller miners are a riskier investment, there’s no running away from it. But they could potentially grow earnings 10-fold in a short space of time. Resource specialist Jason Stevenson is no stranger to explosive resource stocks.

Read more about these in this free report, The Top 10 Australian Mining Stocks.


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read. Money Morning Australia is published by Port Phillip Publishing, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.


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