Same Transition, Opposite Bets: AGL vs Origin — Alpha Insights

AGL Energy and Origin Energy are Australia's dominant integrated energy companies, collectively serving around 9.5 million customer accounts and controlling the majority of flexible generation in the National Electricity Market. Both are navigating the same coal-to-batteries transition. Both reported results in the same week. Both surged on results day — AGL by 12%, Origin by 5%. The similarity ends at valuation.

Our analysis rates AGL a BUY at 17% below fair value and Origin a SELL at 35% above it. The market is discounting AGL's transition as value-destroying while pricing Origin's peak cyclical earnings as permanent. Both assumptions are likely wrong.

The Comparison

Origin scores higher on quality, management credibility, and headline profitability. AGL brings the larger generation fleet, a bigger development pipeline, and a price that gives you a margin of safety. The question is which set of advantages matters more from here.

Where AGL Wins

Fleet scale and transition optionality

AGL operates 8.3 GW of flexible generation, making it the NEM's largest private generator. Its development pipeline has tripled since 2022 to 11.3 GW, giving it optionality that does not appear in current EBITDA. The market prices AGL's coal-to-batteries transition as pure cost and risk — which explains the 5.5/10 quality score and the discount to fair value. What the market underweights is the post-transition economics: once Liddell and Tomago batteries are commissioned and growth capex moderates from A$500M to A$300M annually (expected post-FY28), AGL should unlock A$500M+ in annual free cash flow. That is the option value embedded in the 11.3 GW pipeline that the current price largely ignores.

Cheaper entry with upside asymmetry

AGL's probability-weighted fair value of A$11.58 (blending DCF at A$11.95 with trading multiples and asset-based methods) implies 17% upside from A$9.89. The base case alone (60% probability) produces A$15.81 per share — 60% above the current price. Even the bear case (30% probability) at A$7.92 implies only 20% downside. That is roughly 3:1 upside-to-downside, which is rare for a utility.

Guidance credibility improving

AGL narrowed FY26 EBITDA guidance upward to A$2,020–2,180M (from A$1,920–2,220M) at the half-year result, triggering the 12% share price surge. CEO Damien Nicks has delivered on guidance consistently since his 2022 appointment. The interim dividend rose 4.3% to 24 cents. Customer Markets EBITDA recovered 37% in H1 FY26 as retail margins expanded, with EBITDA per customer account rising from A$36 to A$46. The retail business is quietly getting healthier.

Read the full AGL analysis

Where Origin Wins

Higher business quality across every pillar

Origin's 7.0/10 quality score reflects a more diversified earnings base, stronger management credibility (8.3/10, among the highest for Australian utilities), and a competitive position that is actively widening. CEO Frank Calabria has been at Origin for 25+ years and as CEO since 2017, delivering 10+ consecutive halves of customer growth, a Kraken-driven cost reduction programme that has lowered cost-to-serve by A$79M over four halves, and battery projects on time and within budget. Churn at 14.7% sits 7.7 percentage points below the market average — a structural advantage that compounds each year.

Three distinct value pillars

Origin is not just a domestic utility. Its 27.5% APLNG stake generates roughly A$750M in mid-cycle annual distributions, funding the energy transition without dilution. The 22.7% stake in Octopus Energy/Kraken, now valued at US$8.65B (Origin's look-through share: approximately A$3B), provides exposure to a global energy technology platform serving 90 million contracted accounts. No other ASX-listed utility offers this combination of domestic cash generation, LNG distributions, and technology optionality.

Kraken cost advantage is real and durable

Origin's implementation of the Kraken platform has reduced retail FTEs by 30%, with 80% of customer interactions now digital and 100,000+ customers served by AI. The A$150M permanent cost advantage over peers is observable, measurable, and widening. This is not a one-off efficiency gain but a compounding structural edge in a market consolidating toward an Origin/AGL duopoly — projected to reach approximately 60% combined share by 2030.

Read the full Origin analysis

The Transition vs Peak Earnings Tension

The core analytical tension between these two companies is a disagreement about time.

AGL's market price reflects the trough. The market sees FY27 as a problem: peak Tomago capex, near-zero free cash flow, and EBITDA declining from A$2,100M toward A$1,980M as wholesale price tailwinds fade through hedge roll-off. Gas margins are compressing as legacy contracts expire (purchase costs trending A$8.2 to A$8.3/GJ). Gearing has risen from 24.7% to 38.5% in 18 months as A$1.7B was deployed on batteries and acquisitions. These are real concerns. Rising gearing alongside declining EBITDA creates a window where dividend sustainability could come under scrutiny — even though the interim DPS rose 4.3%, the balance sheet trajectory warrants monitoring. But pricing AGL as though the trough is permanent ignores that it has a defined exit: post-FY28, growth capex drops by A$200M annually and battery contributions begin replacing coal fleet earnings.

Origin's market price reflects the peak. Origin's Energy Markets EBITDA of A$1,650M (FY26 run-rate) benefits from cyclical tariff lag — where retail prices are reset periodically while wholesale procurement costs have already fallen. Our analysis models terminal Energy Markets EBITDA at A$1,350M, reflecting a 55% structural / 45% cyclical weighting. The market appears to price the current A$1,650M as largely permanent. It also appears to value the Octopus/Kraken stake at or above the US$8.65B private round valuation, despite widening losses. Origin's share of Octopus EBITDA losses was A$89M in H1 FY26, nearly quadrupling from A$24M in the prior corresponding period, driven substantially by non-UK expansion burn — a deterioration that was notably underemphasised in management's results presentation.

Both markets are probably wrong. AGL's transition creates option value that the 5.5/10 quality score does not capture: an 11.3 GW development pipeline, first-mover battery positioning, and a defined capex moderation timeline. Origin's Kraken advantage is genuine and durable, but tariff lag cyclicality means current earnings are unsustainable at these levels. The FY27–28 period will resolve both questions: AGL's free cash flow should inflect upward as capex moderates, while Origin's Energy Markets earnings should decline toward the A$1,350–1,400M structural floor. We acknowledge that our framework may underweight the structural floor that passive index flows and retail scarcity premiums create for large-cap ASX utilities — this could moderate the speed of any Origin re-rating, but does not change the fundamental direction.

What the Market Is Pricing

When our framework produces a 35% gap between market price and fair value, the natural question is: what would justify the current price? We can reverse-engineer the market's implied assumptions for Origin and compare them with what we consider achievable.

The market's implied assumptions require EM EBITDA sustaining above A$1,700M (our ceiling), APLNG distributions above mid-cycle, and the Octopus stake at full private-market valuation — all simultaneously. Each assumption individually is defensible. Together, they price in a best-case scenario with almost no margin for error.

Valuation Comparison

AGL's valuation has a wider confidence range because the transition introduces more uncertainty around terminal economics. The severe case (A$0.84) reflects a scenario where coal closure accelerates before replacement capacity is ready while rates remain elevated, creating an equity-impairment outcome in which leverage amplifies asset writedowns — this is a capital-structure stress scenario, not a business-goes-to-zero outcome, but it illustrates how gearing and execution risk intersect at the tail. Origin's severe case (A$2.56) is more moderate because APLNG distributions and the underlying asset base provide a harder equity floor.

A note on the WACC differential: AGL's lower discount rate of 7.08% (versus Origin's 8.0%) reflects its lower commodity exposure — AGL has no equivalent to Origin's APLNG oil price sensitivity — and marginally lower leverage. The 92 basis point gap is not an analytical convenience; it reflects genuine differences in systematic risk between a pure domestic utility and an integrated energy/LNG/technology conglomerate.

The critical observation: Origin's current price of A$11.57 sits above even the top of its 90% confidence range (A$10.04). AGL's current price of A$9.89 sits within the lower half of its confidence range. The market is pricing AGL for significant downside that may not materialise, and pricing Origin for sustained outperformance that our analysis suggests is cyclically driven.

The Eraring Question

Bottom Line

AGL and Origin are both navigating the same energy transition, but the market has priced them for opposite outcomes.

AGL at A$9.89 trades 17% below our fair value of A$11.58, with the base case implying 60% upside and even the bear case limiting downside to 20%. The market is pricing the FY27 trough as permanent and assigning almost no value to the post-transition free cash flow inflection.

Origin at A$11.57 trades 35% above our fair value of A$7.58, with even the base case sitting 29% below the current price. The market is pricing peak cyclical earnings and full Octopus private-market valuation simultaneously.

The 7.0 quality score, 8.3 management credibility, Kraken cost advantage, and APLNG cash flows make Origin's superiority as a business clear. But AGL is the better investment at current prices. The 17% discount to fair value provides a margin of safety that Origin, at a 35% premium, simply does not offer.

Origin becomes interesting below A$8.50, where the base case provides a modest margin of safety and the dividend yield exceeds 7% fully franked. At current levels, the risk-reward favours AGL for investors willing to look through the FY27 trough to the free cash flow inflection beyond it.