Origin Energy Limited

Sound Financials: Origin Energy Limited (ASX: ORG) has posted underlying Profit from continuing operations at $838 Mn, up 110% in FY18 compared to $438 Mn in FY17. Underlying EBITDA from continuing operations in FY18 has been recorded at $2,947 Mn, an increase of 36% from FY17. The company witnessed improved returns from the generation portfolio with 14% increase at Eraring Power station to 15.9TWh and 1.5 TWh new supply from Pelican Point. Further, the company is also achieving higher volumes on gas sales. ORG has handled the competitive environment well, registering higher customer accounts in the second half by 30,000. Net cash flow from operating activities came in higher at $2,645 Mn in FY18 against the prior year. The growth in the energy market has been good for the company as its power generation portfolio lifted output by 14% and higher wholesale prices reflected in the financial numbers.
 

Profit Growth (Source: Company Reports)

The wholesale prices went up drastically after the sudden closure of Hazelwood and Northern Power in 2017. However, the company responded positively by increasing the output from its Eraring Power station. Increased output at Eraring Power plant, retaining the customers and digital-first approach of the company would play to be the catalyst in the growth going forward.

Stock Performance: The stock price has not reflected the good numbers posted by the company in FY18, generating negative YTD return of 17.80%. The momentum strength indicator has been reeling in the oversold zone from quite some time now. We believe that a recovery from the current levels is on the cards and investors can maintain a long position in the stock. We recommend “Hold” on the stock at the current market price of $7.690 believing that slew of positive developments on various fronts for the company would induce a comeback in the stock.
 

AGL Energy Limited

Grim FY19 Outlook: AGL Energy Limited (ASX: AGL) has posted a decent set of result for FY18 with underlying profit after tax at $1,023 Mn, an increase of 27.6% from the previous corresponding period. However, it was the FY19 guidance that came in disappointing with company expecting the underlying PAT to be flat between $970 Mn and $1,070 mn. On the other hand, electricity generation volume has been flat along with declining consumer customer sales. The customer sale has dropped mainly due to low average consumption per residential customer.Similarly, Business customer sales also declined as the company lost a few large volume customers. Further, the prevailing wholesale electricity prices indicate lower electricity margin in the upcoming period.


Consumer Accounts (Source: Company Reports)

The latest hit for the company comes as the managing director and chief executive officer Andy Vesey stepped down after his four-year stint at AGL. Brett Redman has been appointed as the new interim CEO to the Board, effective immediately.

Stock Performance:Stock performance has been sluggish generating negative YTD return of 18.34%. The stock is barely holding its support level of $20.03 on a closing basis. Any further movement below the said level would take stock lower. We believe that the company has a lot on its plate right now as it struggles to maintain growth on the face of softening power prices and tough retail environment. It seems like profits for the company peaked in FY18 and would require some strategy shift and other changes before the next leg of growth can start. We recommend “Expensive” on the stock at the current market price of $20.030 believing that the company would spend a couple of quarters in the transition phase and coping up with the upfront challenges.

 
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