Origin

Origin (ORG) have an upgraded price target of $9.92 per share and an Outperform recommendation from analyst Macquarie Research Equities. Their valuation of the company stands at $9.20. The analyst has re-run their numbers on Origin (ORG) and has upgraded their recommendation to outperform. According to the stockmarket analyst, they believe ORG "provides the best long term investment opportunity in the utilities sector". The analyst has modelled the recent Sun Retail acquisition, accounted for the sale of the Networks business, and revisited their assumptions for the Exploration and Production (E&P) division given the recent changes in the Eastern Australian gas market. The Sun Retail acquisition is now included in MRE’s modelling, contributing an additional $135m in Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) in FY08. The analyst believes this acquisition provides ORG with an excellent opportunity to commercialise more of its Coal Seam Gas reserves into a power generation market that is expected to grow by 9% to 2015. The recent sale of the Networks business to APA Group also bodes well for ORG. The analyst valued the business at $460m, however, the final consideration is expected to be $556m. At present, the analyst has assumed that ORG receive post tax proceeds of $450m in 1H08.

ORG has a Retail division with an appetite for ~130PJ of gas and over 30TWh of electricity a year. It also has an E&P business with almost 1,400PJ of 2P Coal Seam Gas (CSG) reserves, coupled with a significant position in the offshore Bass and Otway basins of Victoria and South Australia. As these upstream projects are now entering the main ramp up phase, the analyst believes the benefits to ORG's Retail division will increase in line with the upstream production uplift. The analyst believes that this integrated business model provides the company the opportunity to reduce the inherent commodity price volatility for its Retail division through increased usage of its own gas for customers and the potential to build additional gas fired generation capacity. Following the demise of the PNG gas project and the acquisition of the Sun Retail business in QLD, the analyst has assumed in their valuation that over the long term an additional 800PJ of CSG reserves are commercialised. The analyst revised their ORG valuation now stands at $9.20 with a 12 month roll forward target price of $9.92. Given the optionality that ORG’s CSG reserves present and the earnings growth coming from its other E&P projects, the analyst believes that ORG provides the best long term investment opportunity in the utilities sector.