Origin’s return on equity ain’t that great

The other big strategic winner for Calabria has been the partly owned LNG exporter APLNG, a veritable cash machine with oil trading at $US55 a barrel. The break-even operating target for APLNG is $US24 a barrel oil equivalent by June 30.

The operating leverage in the APLNG business is clear from the fact that about $100 million in cash will be released each year from 2020 to 2025 as the result of a cost-cutting strategy.

These and other aspects of the Origin result will please investors who have experienced a rollercoaster ride for the past seven months mainly because of uncertainty over energy policy.

Political energy games

Chanticleer reckons Calabria is well out of the doghouse but that conclusion precludes the political considerations ahead of the federal election. There is more than an even chance that the Origin CEO will be smacked around verbally by Energy Minister Angus Taylor before election day.

Taylor this month had a red-hot go at AGL Energyfor releasing an interim profit result, which the minister said should cause consumers to be “outraged”. He implied the “massive” profits were a result of energy companies such as AGL exploiting market forces to harm consumers.

Taylor, a former McKinsey & Co consultant, allowed his hyperbole to get the better of his rationality. AGL made a return on its $8.2 billion in equity of 13 per cent in the latest period based on a rolling 12-month basis.

That is actually a pretty weak performance compared with other companies listed on the ASX.

The top five performing stocks in the S&P/ASX200 measured by return on equity over the past 12 months were: Amcor (66.9per cent), Magellan Financial Group (60.4 per cent) and Sydney Airport (59.5 per cent), Platinum Asset Management (51.4 per cent) and carsales.com.au (48.7 per cent), according to S&P Capital IQ.

Other top-performing companies and their ROE over the past year are Cochlear (42.9 per cent), James Hardie Industries (42.1 per cent), CSL (41.5 per cent) and Blackmores (35.9 per cent).

Many of these companies have been extremely successful on the world stage. They are among an elite group of companies to have broken the domestic shackles and won respect from international fund managers.

Origin Energy ranks about 100 in the league table of ROE winners. In the latest half-year its return on capital employed was 8.6 per cent. While that is up from 6.8 per cent since the second half of 2018, it is pretty dismal. On Thursday, Taylor issued a statement in response to the Origin profit. It was pretty lame.

“For too long, the big energy companies have focused on their profits and not on their customers,” he said.

Chanticleer suspects he will turn up the heat as the election approaches because there are votes in smashing business for making a profit, even if it is well below the levels considered world class and celebrated by investors outside of Australia.


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