Vertically integrated energy company Origin Energy Ltd (ASX: ORG) may have finally left the skeletons of 2018 behind with management reporting a swing-back to net profit and the restarting of its dividend after a six-year hiatus.
But that wasn't enough to keep investors onside. The ORG share price fell 0.4% in early trade to $7.56 even as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index gained 0.1%.
That's quite a different reaction to the Santos Ltd (ASX: STO) share price, which gained 0.6% to $6.98 after it posted a record underlying profit.
Swing to profit
Origin posted a statutory net profit of $796 million for the six months ended December 2018 compared with a $139 million net loss in 1HFY18 as it had to swallow a $360 million impairment charge.
Higher oil-linked gas prices and lower financing costs helped push its underlying net profit up 53% to $592 million and prompted management to re-start paying dividends with a 10 cents a share interim payout.
The last time Origin paid a dividend was in 2013 although not all parts of its business are firing up.
While its joint venture APLNG project is ramping up and delivering strong growth to Origin's Integrated Gas division, its retail gas and electricity business delivered little more than CPI-like growth.
The weak link
Australia's love affair with solar panels and energy efficient LED lights are partly to blame as average electricity consumption per household is falling.
Throw in strong competition for retail customers and customer price relief initiatives due to political and public pressure, and you can understand why this division only managed to post a 2% increase in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to $852 million.
This retail division (called Energy Markets) used to be Origin's biggest earnings contributor. But not anymore.
Integrated Gas contributed $900 million in the first half as underlying EBITDA for the division surged 43% over the same time last year.
The Integrated Gas business separates Origin from its peer AGL Energy Limited (ASX: AGL), which is more exposed to the domestic retail energy market.
Foolish takeaway
But both stocks are facing regulatory uncertainty as the federal government is considering passing laws that will force these industry giants to divest assets if it meant lower power prices for consumers.
Assuming no changes to the regulatory environment, Origin is forecasting underlying EBITDA for Energy Markets to range between $1.5 billion and $1.6 billion this financial year.
This means a weaker second half result for this division due to the headwinds listed above.
This is a mixed result for Origin. Those looking for better leverage to global oil prices will probably want to look elsewhere.
