Rising prices to lift AGL, Origin from power earnings trough

AGL’s proposed split includes forming a new company, Accel Energy, to own its fleet of large power plants, while the other company, AGL Australia, would hold its electricity, gas and telecommunications retailing business along with some cleaner generation assets. Following the demerger, Accel would retain a 15 per cent to 20 per cent shareholding in AGL Australia.

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JP Morgan last month said the recent uplift in forward electricity prices had led to a revision in earnings estimates making the Accel business a “much more palatable” entity than previously thought.

Analysts are widely predicting the 2022 financial year to be the “low point” for Origin and AGL’s energy businesses as wholesale prices begin to recover.

Origin Energy is considered to have a more flexible power-generation portfolio than AGL, enabling it to better respond to wholesale price changes. It also has significant exposure to the unprecedented global rally in liquefied natural gas (LNG) via its stake in the Australia Pacific LNG business in Queensland.

LNG prices including S&P Global Platts’ Japan-Korea Marker, the benchmark for spot LNG in North Asia, passed an unprecedented $US50 per million British thermal units last year and remain elevated this year amid concerns about a possible Russian invasion of Ukraine.

In the final three months of 2021, revenue from Origin’s jointly owned LNG venture rose 33 per cent from the previous quarter and was 91 per cent higher than the same time last year.

Tom Allen, an analyst with investment bank UBS, said he expected rising wholesale electricity prices coupled with rising LNG prices to support 10-15 per cent growth in Origin’s underlying earnings over the coming two years.

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