Macquarie points out earnings expectations in energy markets now reflect the falling LREC price and the inability for Origin Energy to offset this from other sources.
The broker calculates the impact to FY20 earnings (EBIT) is likely to be around -20%. As this is a government subsidy there is little the company can do to mitigate the impact.
Despite this, the broker considers the stock offers value. Cash generation supports a growing yield and de-gearing of the balance sheet.
APLNG is an increasing value proposition which accounts for more than two thirds of the valuation, with leverage to cost reductions and higher spot LNG prices.
Macquarie maintains an Outperform rating and reduces the target to $8.24 from $8.67.
Sector: Energy.
Target price is $8.24.Current Price is $7.28. Difference: $0.96 – (brackets indicate current price is over target). If ORG meets the Macquarie target it will return approximately 12% (excluding dividends, fees and charges – negative figures indicate an expected loss).
