The prospects of capital returns from
-Better performance at APLNG underpins upside
-Chaotic energy market making it difficult to invest
-Hydrogen unlikely to be a driver of value for some time
There are several paths opening up for
An increase in gas production guidance along with improved export demand was noted. Cost reductions continue to feature in both integrated gas and energy markets and the implementation of Kraken technology should provide more retail efficiency.
There was no change to the dividend policy of paying out 30-50% of free cash flow and FY21 production guidance was increased to 675-705PJ, up 4%. Citi assesses guidance is "quite realistic" and forecasts
A reward for patient shareholders is anticipated, in spite of the uncertain outlook for capital expenditure on power generation. By the end of FY22 the leverage ratio should be low enough, in the broker's view, for the pay-out to increase to 50%.
As opportunities for meaningful expenditure on existing facilities are being limited by government intervention, Citi suspects buybacks may be a likely outcome in FY23 while the share price more than compensates for the ongoing risks in energy markets.
Morgans understands there has been an increasing number of spot LNG sales as the northern hemisphere winter lifts demand and the global economy recovers. Higher volumes and higher commodity prices should mean the company can expect a cash distribution in the first half of
The update provides the broker with confidence there is further upside available, with the main driver being the better performance of APLNG.
The broker lifts production estimates to reflect the updated guidance and also raises its forecasts for FY22-24, recognising that APLNG customers will have exhausted downward tolerance in LNG sales contracts over the next 12 months and be required to take higher volumes compare with 2020.
That said, Morgan Stanley welcomes APLNG's FY22-24 cost target of less than
Energy Markets
Credit Suisse envisages better demand in energy markets, increasing FY21 operating earnings (EBITDA) estimates to
First quarter retail energy volumes grew 5% and the pandemic is now cited as a positive factor, as solar/energy efficiency losses were offset by cooler weather. The pandemic was a negative factor for retail in FY20 as reductions in small-medium business consumption more than offset the increase in residential.
Goldman Sachs assesses the company's energy market portfolio is lower in terms of carbon intensity compared with the national energy market and therefore appropriately positioned for any acceleration in transition to renewables.
Yet new renewables and evolving regulation should prove challenging for higher capital-cost operators such as
Macquarie believes the National Energy Markets transition and policy developments, such as the NSW roadmap, are threatening the life of Eraring and may bring forward its closure.
Eraring is
The broker assesses the company can augment Eraring with batteries and gas and, given future plans to reduce expenditure, savings may support investment in new short-duration grid-scale batteries over the next 2-3 years.
Origin has been building options in batteries and quick-fire gas generation and this may ultimately be supported in NSW, along with the expansion of Shoalhaven pumped hydro storage.
Credit Suisse notes Origin has several generation projects in the wings but the risks appear to be too high to advance, given the prospect of government intervention, or government tenders are too low to generate attractive returns.
Hydrogen
The company has pushed into hydrogen with several projects amounting to 300 MW/36,000tpa of export capacity with a trial at
The critical issue is a
The company has three potential projects in green hydrogen and ammonia, two of which should enter front end engineering design shortly. While Origin is well-placed for this sort of technology,
Goldman Sachs, not one of the seven stockbrokers monitored daily on the FNArena database, has a Buy rating and
See also, Capital Management Critical To Origin Energy on
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