Australia's Origin Energy raises lower end of full-year profit forecast

Origin Energy has raised the lower end of its fiscal 2025 underlying EBITDA forecast to A$1.3 billion - A$1.4 billion, up from A$1.1 billion - A$1.4 billion, citing operational improvements and wholesale portfolio benefits. However, the company now anticipates a loss of up to A$100 million from its share of Octopus Energy's annual underlying EBITDA, reversing a prior expectation of up to A$100 million profit, due to unseasonably warm weather in the UK and one-off impacts. This follows an earlier announcement of a reduced EBITDA share from Australia Pacific LNG due to lower prices on sales to Sinopec.

Analysis

Origin Energy has revised its fiscal 2025 underlying EBITDA guidance, raising the lower end of its forecast by A$200 million to A$1.3 billion, while maintaining the upper end at A$1.4 billion. This upward adjustment is attributed to operational improvements within its core business and benefits derived from its wholesale portfolio. However, this positive development is offset by negative revisions concerning its investments. Specifically, Origin now anticipates a loss of up to A$100 million from its share in Octopus Energy's annual underlying EBITDA, a significant downturn from the previously projected A$100 million positive contribution, primarily due to unseasonably warm weather in the United Kingdom during March and April, alongside other one-off impacts. This represents a potential A$200 million negative swing. Additionally, the company reaffirmed an expected reduction in its EBITDA share from Australia Pacific LNG (APLNG) for the six months ending June 2025, a consequence of APLNG implementing price reductions on sales to China's Sinopec. The situation presents a mixed financial outlook, where enhanced performance in Origin's primary operations is counterbalanced by external pressures affecting its key strategic investments, notably weather volatility impacting Octopus Energy and commodity price adjustments affecting APLNG.

Key Decisions for Investors

• Investors should carefully weigh the improved core operational guidance against the significant negative revision for the Octopus Energy investment, which largely offsets the lower-end EBITDA uplift, and the previously announced headwinds for APLNG.
• It is advisable to monitor disclosures regarding the specific nature and financial impact of the 'one-off' items affecting Octopus Energy, as well as the ongoing effects of UK weather patterns on its performance.
• Consider the increased earnings volatility introduced by these international investments and assess Origin's strategies for mitigating risks associated with weather phenomena and LNG market price fluctuations impacting APLNG's contracts.
• Evaluate the net impact on Origin's consolidated earnings profile, given that the A$200 million improvement at the lower band of the core business guidance is directly countered by an up to A$200 million adverse swing from the Octopus Energy investment alone.