Change afoot as Origin Energy cancels investor day

Origin Energy chief executive Frank Calabria. Picture: Adam Yip

A move by Origin Energy to cancel its investor day next month has some questioning whether a major shift in strategy could be afoot for the country’s largest energy retailer.

There is talk in the market that another major deal could be brewing in the oil and gas space, and some are pointing to Origin as a possible contender.

Known to be close to the energy wholesaler and retailer is investment bank UBS.

Origin has 4.2 million electricity, gas and LPG customers and also owns a significant interest in Australia Pacific LNG, supplying 30 per cent of east coast demand and export LNG to customers in Asia.

Origin’s share price has languished since January last year, although the group is faring far better than its rival AGL Energy, which has announced plans to demerge its coal-related assets.

The company’s market value is now $8.75bn and its shares closed at $4.92. In January 2020, the share price was $8.65.

The logical move by Origin that has been mooted for years is a demerger of its Australia Pacific LNG stake, but chief executive Frank Calabria went on the record earlier this year saying that a demerger was not on the agenda.

Shares in AGL plunged after its demerger was announced.

The other possibility could be that a buyer is circling for Origin’s energy retail business.

There has been talk around the market this year that UBS has been busy behind the scenes on Origin. The group has declined to comment on speculation.

Some believe a demerger would be odd, given Origin only in October sold a 10 per cent stake in APLNG for $2.21bn to EIG, leaving it with a 27.5 per cent interest.

Still, it is worth remembering that there are still plenty of infrastructure funds in the market looking for investment opportunities in the low interest rate environment.

Other holders of APLNG are ConocoPhillips (27.5 per cent) and Sinopec (25 per cent).

The logic for a demerger when it was contemplated back in 2016 was to deal with its debt and prompt a higher market valuation of the overall business.

Back then analysts at UBS said Origin Energy’s 37.5 per cent stake in the Queensland APLNG project had an implied market value of $2.5bn, despite its $10bn book value.

But experts say a demerger would be hard because the electricity business used to subsidise its oil and gas operation, but now the reverse is happening.

Weighing on the share prices of both AGL and Origin is the fact that they contain energy-generating commodities in their portfolios which are seen by investors as having an bad impact on the environment.

Origin owns not just the Eraring Power Station, a black coal-fired asset in NSW, but oil and gas assets that are also considered to have an adverse impact on the environment.

Earlier in the year, some suspected something could be up at Origin after its oil and gas head Mark Schubert took on the role running Cleanaway.