Origin Energy Ltd (ASX: ORG) released its results for the half-year (HY21) and the share price went flat. Is it me or is this a growing trend for energy companies?
Origin operates energy businesses including exploration and production of natural gas, electricity generation, wholesale, and retail sale of electricity and gas. It’s one of Australia’s leading energy retailers, competing with the likes of AGL Energy (ASX: AGL).
Down on all fronts
The lower commodity prices stemming from the COVID-19 pandemic adversely impacted Origin’s bottom line. Origin reported a significant fall in profit from $599 million in HY20 to $13 million in HY21.
Also, Origin’s underlying EBITDA dropped by $436 million to $1.15 billion. Origin still managed to partially offset the negative impact of lower commodity prices through lower operating costs and a net gain in its oil hedging.
The company noted free cash flow remained strong at $655 million as a result of lower working capital needs.
Despite the subdued performance in HY21, Origin’s board is committed to paying an unfranked interim dividend of 12.5 cents per share, slightly lower than HY20’s interim dividend of 15 cents per share.
Management outlook
Origin CEO, Frank Calabria expressed optimism about the future, as he said, “Good progress has also been made on future growth options in gas and zero and low-carbon fuels, with early results from the Beetaloo exploration program confirming elevated liquids yields and low levels of CO2, and a farm-in to the highly prospective Canning Basin. Our work in hydrogen is advancing with export-scale projects under consideration in both Queensland and Tasmania, along with storage options in our generation portfolio.”
Calabria recognises the importance of offering zero and low-carbon fuels, which is important given the current shift towards renewable sources of energy.
My takeaway
Origin has plenty of capital and free cash flow, which could be deployed in a number of ways. So, for Calabria to emphasise the importance of Origin’s work in hydrogen bodes well for its long-term future.
Management seems buoyed by the recent rally in oil and gas markets, suggesting it will have a positive impact on earnings in the second half. To me, this demonstrates how much of an influence commodity prices have on energy businesses.
Ultimately, this business is too cyclical for my liking and I tend to prefer more resilient businesses. Before you consider Origin, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.
