Origin Energy (ORG) Update

Submitted by Share Trading on 27 March, 2008 - 13:01

Origin Energy has an Outperform recommendation with an 25% upside potential to the current stock price from shares analyst Macquarie Research.

Origin Energy (ORG):Government Asset Sale to Power Market

In an environment that has seen Resource stocks rocket skywards, the local energy sector has faltered in contrast. Many have blamed poor investment decisions and wavering debt from a few influencing the many. Despite this the future is now looking bright as one stock in particular, Origin Energy (ORG), sets itself for takeoff.

The main issue companies face is the raising of capital to enhance growth opportunities. This is particularly pertinent for the local energy sector with the NSW government run operations set to be open for privatisation. In preparation for this, ORG has announced that it has raised $1.54bn including oversubscriptions of $420m from the syndication of its underwritten three-year credit facility. As a reflection on the willingness of lenders to support this type of utilities exposure ORG will pay a margin of 65bp per annum above the applicable base rate for each tranche of the facility. This could be considered a superb result given current debt market conditions with many companies looking at levels above 100.

Primarily this capital allows ORG to reorder and consolidate its internal operations before making the expected play at what ever operations the NSW Government makes available. In carrying out such preparation the company will be separate from any additional distractions which may impinge on hindering any possible deal.

Macquarie Research Equities (MRE) support the view that Origin Energy (ORG) is now well positioned to capitalise on any movement and opportunities within the sector. Resultingly they rate the stock an outperform with an 25% upside potential to the current stock price. This is further supported by the willingness of the debt markets to prive available funding at a lower than expected rate.