Origin Energy narrows energy markets guidance for 2025, citing operational gains

Origin Energy narrowed its FY25 energy markets guidance upward to A$1.3-1.4 billion, citing strong generation performance and favorable market conditions, while revising its Octopus Energy outlook to a loss of up to A$100 million due to unseasonably warm UK weather and one-off subsidy impacts. Despite the Octopus Energy downgrade, the company highlighted its continued growth, with UK retail customers increasing by over 10% to 7.5 million and non-UK retail accounts doubling to 2.5 million; Origin shares were down 4.71% following the announcement.

Analysis

Origin Energy has revised its FY25 underlying earnings guidance for its energy markets division upwards, now projecting between $1.3 billion and $1.4 billion, an increase from the previous lower bound of $1.1 billion. This positive adjustment is attributed to robust generation performance, favorable market conditions, reduced green certification costs, operational enhancements, and benefits derived from its wholesale portfolio, including increased electricity volumes. Conversely, the company has significantly downgraded its FY25 outlook for its investment in UK-based Octopus Energy, now anticipating an underlying EBITDA loss of up to A$100 million, a stark contrast to the previously guided positive contribution of up to $100 million. This revision is primarily due to unseasonably warm weather in the UK during March and April, which reportedly reduced earnings by approximately $50 million as the UK experienced its third warmest April since 1884, leading to decreased electricity and gas volumes, alongside one-off impacts from the government's energy price guarantee subsidy. Despite this earnings setback, Octopus Energy demonstrated continued strong growth, with UK retail customers organically increasing by over 10% to 7.5 million in the year to April 30, and non-UK retail accounts doubling to 2.5 million; its Kraken platform also expanded to approximately 74 million contracted accounts, notably including its first major US customer, National Grid. For its half-year FY25 results, Origin reported a statutory profit of $1.017 billion, up from $995 million, and an underlying profit increase to $924 million, driven by integrated gas and lower taxes, which offset weaker energy markets and Octopus Energy performance. However, underlying EBITDA for the same period declined to $1.926 billion from $1.995 billion. Origin affirmed its commitment to investing in the energy transition, with plans for up to 5 gigawatts of new renewable projects and approximately $1.5 billion allocated to battery investments. Following these announcements, Origin's shares traded down 4.71% to $10.53.

Key Decisions for Investors

• Investors should weigh the improved earnings outlook for Origin's core energy markets against the significant downgrade in its Octopus Energy investment, considering the offsetting financial impacts and distinct operational drivers.
• Monitor Octopus Energy's progress towards profitability closely, particularly its sensitivity to weather patterns and UK regulatory impacts, while acknowledging its strong customer and platform growth metrics as potential long-term value drivers.
• Evaluate the 4.71% share price decline as a potential entry point or a signal for increased caution, assessing whether the market reaction adequately prices in both the positive core business revisions and the negative Octopus Energy guidance relative to Origin's ongoing investments in the energy transition.