ORG is positioned in the competitive rather than regulated energy segment. Integration of exploration, production, generation and retail of gas and electricity lifts the range of development opportunities and reduces risk. Strategy is to explore and develop gas where easy to market. The country's largest coal seam gas reserve holder is leveraged to potential export parity pricing. Financial objectives are steady and predictable cash flows and EPS growth of 10-15% pa. In the five years to FY09, average annual EPS growth was 16.6%. A number of new projects will produce over the next few years. In future expect a 60% payout thanks to ConocoPhillip's US$5bn up-front cash injection for 50% of CSG. Suitable for investors seeking a medium risk energy exposure with growth potential.
Recent Analysis:
ORG reported a 25% increase in underlying FY09 earnings to $531m, 4% below our $552m forecast, but in line with consensus. Headline profit increased 12-fold to $6.94bn including a $6.72bn gain on the Australia Pacific LNG transaction with ConocoPhillips, less $114m on hedges and $219m in asset impairments. No surprises with the final dividend of 25cps bringing the full year to 50cps in line with expectations. It will be paid on September 23 with shares trading ex-entitlement on August 25. Of the four divisions, the Retail EBITDA result was below our expectations, but this was made up for by higher Exploration & Production and in particular Generation contributions. The Contact Energy result, down 20% and the worst of the four, was in line with expectations. Record annual production meant E&P enjoyed a steady result despite the APLNG sell-down and lower commodity prices. The Retail business softened chiefly due to an incorrect tariff decision. Initial contributions from Uranquinty power station and the expanded Quarantine power station resulted in a near doubling in Generation EBITDA. Poor weather and transmission constraints exacerbated by the NZ recession led to a woeful Contact Energy result.
Recommendation: You should buy this stock.
| Previous close | 52 week high | 52 week low |
| $15.38 | $19.99 | $12.34 |
| Sector | ||
| Energy | ||
| Market cap | ||
| $13,457 Million | ||
| Total shareholder return (avg annual rate) | |||
| 1yr | 3yr | 5yr | 10yr |
| 0.8% | 36.8% | 25.2% | -- |
| Earnings and dividends forecast (cents per share) | |||
| 2010 | 2011 | 2012 | |
| EPS (c) | 60.0 | 71.0 | 84.9 |
| PE Ratio (x) | 25.6 | 21.7 | 18.1 |
| DPS (c) | 50.0 | 50.0 | 53.2 |
| Div Yield (%) | 3.2 | 3.2 | 3.5 |
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