What: Origin Energy Ltd (ASX: ORG) shares leapt 3.7% on Thursday in the wake of a Sydney Morning Herald report that analysts at Credit Suisse had run the numbers on the possibility that Origin may choose to split its business into two separate companies namely, Electricity Markets and Integrated Gas.
So What: It's not the first time that the option of a split (demerger) has been discussed by investors and analysts.
In many ways the results of Credit Suisse's analysis wasn't particularly positive considering the investment bank concluded that a demerged group would require around $4 billion in extra equity.
A demerger is certainly worth pondering, considering the Energy Markets division achieved underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $721 million for the half year ending December 2015.
Meanwhile, the Integrated Gas division generated $137 million of underlying EBITDA for the half. This division is forecast to earn substantially higher profits as the APLNG business ramps up and the second train comes on line.
It's also worth considering the assumptions made about the timing of a split and the oil price which Credit Suisse built into its model. The need to raise extra capital could be averted, dependent on what the oil price does from here and when a demerger could occur.
Now What: With the potential for shareholder value at Origin back in the news, some investors appear to have taken a more positive view on the value of Origin's shares.
Adding impetus to the buying in Origin was the stronger oil price, with Brent oil currently selling for just under US$44 a barrel.
Origin wasn't the only stock in the resource sector enjoying solid gains yesterday. BHP Billiton Limited (ASX: BHP) which has a substantial oil business rallied 5.3%, while Santos Ltd (ASX: STO) added 1.2%.
Overnight, the oil price slipped 0.9% while US stocks only eked out small gains. The lead from overseas markets might limit upside for local energy shares today.
