Origin (ASX: ORG) posted $838 million in underlying net profits after tax for the financial year ending 30 June, doubling its 2017 result, but still undercut Morningstar's expectations.

Statutory NPAT of $218 million for the year put the company back in the black in the year, compared to a $2.2 billion loss last year, when it was hit by impairment charges.

Origin management also signalled it would return to dividend payouts this financial year, though the final dividend wasn't declared.

Morningstar senior equity analyst Adrian Atkins applauded the result, despite its failure to meet expectations.

"It's a strong result with underlying NPAT up 110 per cent … but it was a little below our expectations due to higher corporate costs and a slightly weaker-than-expected result from the integrated gas divisions," Atkins said.

LNG gas energy Origin

Origin's LNG gas export business delivered weaker results than anticipated

These weaker results were primarily within its APLNG liquefied natural gas export business in Queensland, "though the utility business was in line with expectations and guidance", Atkins added.

Underlying earnings in the integrated gas business rose 67 per cent to $1.25 billion, underpinned by record production at APLNG.

"The market didn’t like management's guidance for EBITDA in the utility business to fall around 6 per cent in fiscal 2019, mainly because of competitive pressure,” Atkins said.

Political stoush over power pricing

The result comes amid increasing political pressure on energy sector players to reduce power prices to cut household electricity bills, after years of steep price growth.

"Considering medium term headwinds from government policy to improve utility bill affordability, it’s hard to see where earnings growth will come from in this division,” Atkins said.

Atkins said another “negative surprise” was Origin’s higher-than-anticipated maintenance capital expenditures at its LNG export business.

Signalling a return to dividends, Origin chairman Gordon Cairns said the company had materially reduced debt and lifted business performance, and was now in a “much stronger financial position and more resilient to commodity cycles.”
"Subject to board approval and no material adverse change in business conditions, our medium-term outlook supports recommencement of dividends in FY2019," Cairns said.

For 2018/19, the electricity retailer expected underlying profit to be higher and debt lower.

It expects the energy market segment to report underlying earnings of $1.50 billion to $1.60 billion.

Australia Pacific LNG's production for the financial year is expected to be between 660-690 petajoules and is targeting operating break-even of $US22-26 per barrels of oil.

Origin shares were trading at $8:90 at time of publication.

Origin Energy turns FY profit:

* Net profit $218m vs $2.2b loss

* Revenue up 7pct to $14.8b

* No final dividend, unchanged

 

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Glenn Freeman is senior editor, Morningstar Australia.

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