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Kalkine Daily 02/03/2015 + Origin energy

Mar 07, 2015

| Read Time :10 Mins

In today’s daily we have covered stock research on Origin Energy (BUY).

The S&P 500 was down by 6.24 points or 0.30% on Friday and closed at 2104.50 points. TheS&P 500 posted its best monthly gain since October 2011 on Friday, but U.S. stocks ended lower for the day as U.S. economic growth slowed more sharply than initially thought in the fourth quarter.The S&P 500 gained 5.5 percent for the month, while the Nasdaq rose 7.1 percent, its best monthly performance since January 2012. The strong gains have pushed the Nasdaq within striking distance of the 5,000 mark and record highs set in March 2000.

J.C. Penney dropped 6.8 percent to $8.50 after the retailer posted a surprise quarterly loss and forecast small margin improvements this year. The Dow Jones industrial average fell 81.72 points, or 0.45 percent, to 18,132.7, the S&P 500 lost 6.24 points, or 0.3 percent, to 2,104.5 and the Nasdaq Composite dropped 24.36 points, or 0.49 percent, to 4,963.53. Shares of Monster Beverage jumped 13.1 percent to $141.12, the biggest percentage gainer in the S&P 500 and Nasdaq.

J.C. Penney Daily Chart (Source – Thomson Reuters)

S&P ASX 200 was up by 20.3 points or 0.34% on Friday and closed at 5928.8 points. Woolworths' shares had their biggest one-day dive since the global financial crisis, closing 9 per cent down to $30.71. The company posted a 3.1 per cent fall in half-year profit to $1.28 billion, and chief executive Grant O'Brien warned full-year profit growth was expected to slow to 1.8 per cent, well below its 4 per cent to 7 per cent target. Among the banks, strong buying in Commonwealth Bank shares in late trade on Friday helped the market climb back into the black, gaining 1.9 per cent for the week, while ANZ gained 1.1 per cent, Westpac was up 1 per cent and NAB closed up 1.1 per cent.

The end of February also spells the end of the first reporting season for the year. Southern Cross Media gained the most last week, adding 19 per cent to its share price to $1.09 despite joining its peers in the media by reporting a heavy net loss of $34.7 million for the half. Of the sectors, health services was the winner, punctuated by Ramsay Healthcare's solid earnings. Consumer staples fell the most, with Woolworths results and share plunge also spookingWesfarmers and Metcash investors.

Southern Cross Media Daily Chart (Source – Thomson Reuters)

Top Performers on the ASX 200 were :-

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Stock Of the Day - Origin Energy (BUY)

Origin energy controls around a third of the Australian energy retailing market. Its energy markets division comprises around 60% of group earnings, largely comprising Australian electricity generation and retailing. Its New Zealand based electricity business Contact Energy, comprises a further 20% of group earnings. However energy retailing is a highly competitive and low margin business and the Australian market is mature with little growth potential.

Energy Markets Sources - (Company Reports)

Regulated increases in retail energy prices and higher energy consumption should underpin profit growth but we expect increased price based competition to undermine profit margins. We expect the massive Australia Pacific LNG project to provide strong earnings from 2016. Origin Energy reported weaker than expected result for the first half of fiscal 2015 but the integrated business model dissipated some of the impact of the weak energy prices.

ORG Dividends + EPS (Source - Company Reports)

The 9% fall in underlying net profit after tax or NPAT to AUD 346 million was below our expectations. The reported loss of AUD 25 million included a range of one off items making it unreflective of long term earnings capacity. The company’s maintained group earnings before interest, tax, depreciation and amortization or EBITDA at around 1 billion thanks to the integrated business model with the energy Markets division effectively hedging the Exploration and Production or E&P division.

Origin Energy Chart (Source - Thomson Reuters)

The Australian Liquefied Natural Gas or APLNG project remains on budget and on tract to start at Curtis Island in mid-2015. A further AUD 2 billion is required from origin before APLNG is self-funding, however with AUD 5.2 billion in undrawn debt facilities, the additional capital expenditure shouldn't be a problem. Once APLNG cash flows start we expect Origin to significantly reduce debt and the company also has the option of selling project infrastructure. On the basis of above we put a buy recommendation on the stock at the current price of $12.21.

Team Kalkine

Level 13 167 Macquarie Street
Sydney NSW 2000 Australia
E-Mail - [email protected]
Phone - 02 8667 3147

Note - You can also view this daily in the special reports section.

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