New CEO Frank Calabria has addressed the ongoing debt position at Origin with the proposed sale or spin off of the upstream exploration and production business. The new vehicle should be valued at approximately $1.5 billion. Origin had debt of $9.6 billion at June 2016 and has since realised $486 million in asset sales with plans to realise $800m in sales by June 2017. The spin off should reduce debt by another $1 billion and lift Return on Equity should the float (or sale) be successful.
CEO Calabria has predictably reshaped the previously long standing management team. Even Origin’s overcrowded presentation slide pack has enjoyed a much needed renewal!
Origin has appeared in our portfolio a few times over the last decade with the most recent appearance back in February 2016. Our approximate entry price was $4.40 with the stock hitting a new high for 2016 this month of $6.40. The new CEO seems to have got away well with a 19% lift in the stock price since taking up the role in November.
It is however early days for the new team who, like most resource companies, are enjoying a strong underlying commodity price. Further asset sales are anticipated including the Darling Downs pipeline in Queensland and the Stockyard Hill wind development near Ballarat in Victoria.
While Origin appears to have turned a corner, the medium term direction will be linked to the oil price and we consider second guessing the oil price to be a bit of a lottery.
It is easy to swing along with resource stocks when the winds are favourable. They are hard to own when the winds turn.
Experience tells us that the sell decision is harder than the buy call so we have turned cautious with this timely rally.