The Origin Energy Ltd (ASX: ORG) share price is one to watch today after it announced growth for its Octopus investment.
Origin’s Octopus investment
Origin acquired 20% of UK based energy company Octopus Energy Group in May 2020 for £215 million. Today, Origin announced that it will invest an extra £38 million (around AUD$70 million with a 0.533 exchange rate) to maintain its 20% stake in Octopus as a new investor joins the party.
A fund managed by sustainable investor Generation Investment Management (GIM) is the newest investor in Octopus and has valued Octopus at around £3 billion (AUD$5.5 billion). GIM is investing £211 million for approximately 7% of the company.
This means that Octopus has tripled in value since Origin’s original investment in May 2020.
GIM will have the option to double its stake in Octopus before June 2022. If GIM takes up this option, then Origin has the option to invest to maintain its 20% stake.
What will Octopus use the money for?
Octopus will use the money to accelerate its growth strategy, particularly international expansion. Innovative solutions such as electric vehicle charging will also be a focus.
Origin confident in Octopus
Management at Origin had a lot of positive things to say about how Octopus is expanding. Some of the standout points were:
- Octopus has expanded internationally with acquisitions in Spain, Texas and New Zealand.
- Entry into Japan progressed and on track for first electricity customers in October.
- Growth in licensing its Kraken technology platform to energy retailers with a target of 100 million customer accounts on Kraken by 2027.
- Expected growth of £250 million in licensing revenue over the next three years based on completed deals.
- Octopus achieved more than 4.3 million customer accounts on Kraken in the UK in less than 12 months.
Origin will also migrate its retail customers to the Kraken platform by the end of 2022. The company said this is expected to bring in $100 million to $150 million of “cash benefits” from FY24 with a low cost, high service operating model.
Origin CEO Frank Calabria said:
“Octopus has emerged as a global leader in energy retailing and technology, achieving significant growth in its home market and expanding into several international markets… Our exposure to Octopus’ continued success is expected to be an important avenue of growth for Origin. “
Final thoughts on the Origin share price
Origin has had an underwhelming time lately, with a fizzle in its FY21 result. For shareholders that have held Origin, this is a welcome moment of reprieve.
Management deciding to invest in Octopus in May 2020, in the middle of COVID-19, could have been a risky move but it has paid off so far.
The Origin share price is up by 4% at the time of writing. However, the share price is low compared to its pre-COVID level of $8.74 in January 2020, a fall of 46.2% to today’s price.
Energy businesses like Origin and AGL Energy Limited (ASX: AGL) are seeing a lot of disruption from the energy transition to renewables and the sentiment towards fossil fuels is changing rapidly.
After such a large decline of the Origin share price, it possibly could be a cheap opportunity, but I’m personally looking at other ASX dividend shares.
