AGL & ORG Share Trading Recommendation

Origin Energy (ORG) is is currently trading at a 9% premium to analyst Citigroup Investment Research's (CIR) fair value, whereas AGL is trading at a 5% discount. On that basis, CIR's preference remains for the latter; however, they concede that ORG potentially has greater upside should AGL make a hostile move. In a move that overshadowed ORG's 1H07 results, AGL released a statement and presentation that set out in detail management’s view on the potential benefits of merging the two companies. AGL's presentation outlines the prospect of annual benefits reaching $330m; this appears to be considerably above ORG's estimate. In a proposal put forward on January 16, AGL offered a premium of 9% (based on three-month (VWAP) via an exchange ratio of 1.86 ORG shares for each AGL share. ORG accepts that this exchange ratio was proposed; however, management stated that relative value, in its view, was not appropriately reflected in recent share price history. ORG reiterated its position as set out in its rejection of the AGL proposal last Friday: specifically, the value leakage encountered in merging will ultimately undermine the benefits of a combination. Furthermore, in its 1H07 presentation, ORG outlined its view that corporate and retail benefits would be well below AGL estimates. AGL's release appears to have curried little favour with ORG; management is resolute in its opinion that a merger does not present a compelling prospect. For AGL to go hostile, management would require great conviction in its estimate of merger benefits. In CIR's view, an exchange ratio of 1.62x would be the maximum extent of an AGL offer.

Origin Energy Limited is listed on the Australian Stock Exchange (ASX) under stock code ORG. You can view their investor website here. ORG was listed on the ASX on 13 July, 1961. Kevin McCann is the chairman of Origin Energy and the managing director is Grant King. Origin Energy is a top 100 ASX listed company involved in gas and oil exploration and production, energy retailing, power generation and utility network management. AGL Energy Limited is listed on the Australian Stock Exchange (ASX) under stock code . You can view their investor website here. AGK was listed on the ASX on 12 October, 2006. Mark Johnson is the Chairman for AGL Energy and Paul Anthony the Managing Director. The Company will operate Australia's largest retail energy and dual fuel customer base and consist of a substantial portfolio of wholesale energy contracts and assets to support its retail customer base. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade . Check your charts and good luck with your share trading!