Origin Energy Ltd. (ORG), Australia’s biggest electricity retailer, fell to the lowest in more than four years in Sydney trading after cutting its profit forecast.
Shares of the Sydney-based company fell 5.7 percent to A$10.42, the lowest since April 29, 2008, while Australia’s benchmark S&P/ASX 200 Index dropped 0.5 percent.
Origin said yesterday it expects underlying profit to decline about 5 percent to 10 percent because of regulatory uncertainty. The revision comes as the company’s credit rating is under pressure while it seeks to cut its stake in a A$23 billion ($24 billion) liquefied natural gas venture in Queensland, said Goldman Sachs Australia Pty Group.
“Strengthening of the balance sheet may be required,” Goldman analysts Mark Wiseman and Anthony Ta wrote yesterday in a report. The size of Origin’s earnings estimate cut is surprising, the analysts in Sydney said.
The company said in August it expected underlying profit for the full year to be in line with the previous year’s A$893 million. A pricing decision by the Clean Energy Regulator is estimated to cost Origin about A$40 million this year, it said yesterday in a statement.
“This year is a much more difficult year than any prior year I’ve experienced in terms of our ability to forecast,” Managing Director Grant King said today on a call with analysts.
The reduction in its profit outlook wouldn’t hurt the company’s ability to fund the Australia Pacific LNG project it’s developing with partner ConocoPhillips (COP:US), he said.
While meeting Origin’s funding requirement with debt would probably lead to its credit rating being cut to BBB from BBB+, this option “has some merit,” according to a Nov. 5 report from Bank of America Corp. Origin has said it’s seeking to reduce its stake in the project to 30 percent from 37.5 percent.
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