Origin Energy Limited

The Business

Origin sits across two very different businesses. Energy Markets is the retail and generation arm: electricity and gas sold to 4.9 million accounts, backed by coal, gas and a rapidly growing battery portfolio that is 18-24 months ahead of rival AGL. APLNG, held via a 27.5% equity stake, exports LNG from Queensland and hands Origin a fully-franked distribution stream, $911 million in FY26, that no other ASX utility can replicate. A smaller venture stake in UK-based Octopus Energy and its Kraken software platform rounds out the portfolio.

Recent Performance

FY26 revenue fell 9.6% to $15.6 billion, a fall driven entirely by lower wholesale prices flowing through to retail tariffs, not by volume loss. Underlying earnings still hit a cyclical high, with EBITDA (earnings before interest, tax, depreciation and amortisation) of $1.75 billion, as tariffs set a year earlier had not yet caught up to falling wholesale costs. The market has rewarded that peak, pushing the share price to levels last tested during the 2023 takeover approach.

Outlook

The next two years look considerably tougher. Annual tariff resets are catching up with lower wholesale forward prices, and we expect Energy Markets earnings to trough in FY28-29 before batteries and demand growth rebuild the base. Group EBITDA margin is set to compress meaningfully over the same period, with earnings per share falling from current levels before a modest recovery further out. The mechanism is largely mechanical: default market offer and Victorian default offer resets embed the latest wholesale forecasts each year, so the earnings decline is a timing effect working its way through the retail pricing cycle rather than a sign of competitive deterioration.

Key Risks

Wholesale electricity price compression is the highest-probability risk in the thesis. As tariffs reset annually to reflect wholesale forward curves that are running well below current levels, Energy Markets EBITDA faces a meaningful hit from its recent peak, and this is already the central driver of our forecasts. A separate, lower-probability but higher-severity risk sits in the Tri-Star litigation, which covers roughly a fifth of APLNG's reserves and could take two to five years to resolve with no provision currently booked. A third risk relates to the Octopus/Kraken venture stake, carried well below its last private funding valuation, where the absence of a disclosed timeline or return target makes independent verification of the current carrying value difficult.

What to Watch

• August 2027 FY27 result — the thesis-defining event. Energy Markets EBITDA holding near recent peak levels would validate the market's sustained-margin view; a sharper fall would support our trough call.
• FY27 Battery run-rate revenue — delivery meaningfully above current run-rate would support a structural earnings floor above prior cycle lows.
• 1-3 years Octopus/Kraken crystallisation event — an IPO or capital raise at or above recent private valuations would be a positive signal for a currently unproven asset.

Company Description

Energy Markets is the core of Origin, covering electricity and gas retailing to households and businesses plus the generation fleet that supplies them: coal (Eraring), gas peakers, and an expanding 1.8GW battery portfolio. This segment generated $15.3 billion of revenue and $1.7 billion of EBITDA in FY26. APLNG, an equity-accounted 27.5% stake in a Queensland LNG export joint venture with ConocoPhillips and Sinopec, contributed $911 million in cash distributions. A smaller holding in UK retailer Octopus Energy and its Kraken software platform, carried at roughly $1.5 billion, adds venture-style upside outside the core utility business.

Where the Growth Is

The 1.8GW battery and virtual power plant portfolio is the one structural growth lever in an otherwise cyclical business. It is the largest such fleet in the National Electricity Market and roughly 18-24 months ahead of AGL's build-out. We estimate it lifts Energy Markets EBITDA by $150-200 million above what a pre-battery Origin could earn, through pool revenue, capacity payments and avoided gas-fired start costs, and is the main reason the FY22 trough of $401 million should not repeat.

Competitive Position

Origin is the only Australian energy company that is fully integrated across retail, generation, storage and an export-linked gas asset. Its customer churn rate sits well below the market average, evidence that scale and service quality, not just price, are retaining accounts. Barriers to entry are real: replicating 8.6GW of generation, a battery fleet at this scale and a retail base of 4.9 million accounts would take years and billions of dollars. That advantage should hold for the next five to seven years, but it is not indefinite. AGL is closing the battery gap, and the retail market itself is a mature oligopoly, so Origin's edge comes from execution rather than a structurally widening moat.

Management & Capital Discipline

Management has delivered the battery rollout on time and on budget, and cost-out targets have been met. Capital allocation elsewhere is more mixed: the $1.5 billion committed to Octopus and Kraken remains unproven, with no disclosed timeline or return target, and the balance sheet is running below its own leverage target, which is conservative but arguably an underuse of capital. To its credit, management has been unusually candid in flagging the wholesale price reversion ahead of consensus, a level of disclosure most companies avoid when it means guiding expectations down.

Financial Position

Origin's balance sheet is strong. Leverage sits comfortably below management's own target range, and the business can absorb a substantial earnings decline before covenant pressure becomes a concern. Free cash flow, even at the forecast trough, remains positive through the forecast period, and the fully-franked APLNG distribution stream alone covers a large share of the dividend. This is a company that can fund its dividend and battery build-out through a down-cycle without needing to raise capital.