ORIGIN ENERGY LIMITED

(ASX ORG)

Student Brendan Viney (16162080)

Student Jason Browne (17071815)

Tutor Tze Sheng Yeo

Tutorial Time Tuesday 4pm

2

TABLE OF CONTENTS

PAGE

10 INTRODUCTION 3

20 SHAREHOLDERS 4

30 INVESTMENT RISK 6

31 DECLINING OIL PRICES 6

32 DOWNGRADED CREDIT RATING 8

40 INVESTOR RETURN FOR 2015 FINANCIAL YEAR 9

50 ORIGIN ENERGY LTD COST OF CAPITAL 13

51 DEBT TO EQUITY RATIO 13

52 COST OF EQUIT 13

521 CAMP (CAPITAL ASSET PRICING MODEL) 14

522 DGM METHOD 14

53 CAMP VS DGM 16

54 WACC 18

55 ANALYSIS OF WACC 18

60 REFERENCES 20

70 APPENDIX 23

3

10 INTRODUCTION

Origin Energy Ltd is a large energy company that started in 2000 due to the

demerger with Boral Ltd1 The company now currently has a market capital of

$8044494000 making it one of the 50 largest companies on the ASX

Australia and is currently listed on the SampP ASX 502 Currently Origin energy

has three main components to its business The first of which is its interest in

exploration and production of LNG (liquefied natural gas)3 The company

currently has multiple exploration interests all around Australia4 is a major

shareholder in the Australia Pacific LNG project owning 3755 and has

invested in building two large trains which will increase Origin energyrsquos ability

to produce more LNG by late 20166 The second art of Origin energyrsquos

business in the retailing of energy the company is Australian retailing leader

in electricity gas and LPG Currently with 43 million customers who give

them a market share of around 29 (based on their client range of Eastern

and Southern Australia)7 The third and substantially smallest major part of

Originrsquos business is focused in renewable and green energy projects as in the

future they are looking to produce for clean energy8 Overall Origin energy is

much more than just a producer of energy products but also a major

distributor This increases the diversity of the company compared to its

competitors This is beneficial into lowering the companyrsquos risk and has a

major impact in the companies future operations

1 ldquoOur Proud Historyrdquo Origin Energy Accessed March 28 2016 httpswwworiginenergycomauaboutwho-we-

areour-storyhistoryhtml final paragraph

2 ldquoOrigin Energy Ltdrdquo ASX Accessed March 28 2016 httpwwwasxcomauasxresearchcompanydoORG

3 ldquoAnnual Report 2015rdquo Origin Energy Ltd September 18 2015

httpswwworiginenergycomaucontentdamoriginaboutinvestors-mediadocsannual-report-2015pdf 11

4 ibid

5 ldquoProject Partnersrdquo Australian Pacific LNG Accessed 28 March httpwwwaplngcomauabout-projectproject-

partners

6 ldquoAnnual Report 2015rdquo Origin Energy Ltd September 18 2015

httpswwworiginenergycomaucontentdamoriginaboutinvestors-mediadocsannual-report-2015pdf 11 7 ibid

8 ibid

2

TABLE OF CONTENTS

PAGE

10 INTRODUCTION 3

20 SHAREHOLDERS 4

30 INVESTMENT RISK 6

31 DECLINING OIL PRICES 6

32 DOWNGRADED CREDIT RATING 8

40 INVESTOR RETURN FOR 2015 FINANCIAL YEAR 9

50 ORIGIN ENERGY LTD COST OF CAPITAL 13

51 DEBT TO EQUITY RATIO 13

52 COST OF EQUIT 13

521 CAMP (CAPITAL ASSET PRICING MODEL) 14

522 DGM METHOD 14

53 CAMP VS DGM 16

54 WACC 18

55 ANALYSIS OF WACC 18

60 REFERENCES 20

70 APPENDIX 23

3

10 INTRODUCTION

Origin Energy Ltd is a large energy company that started in 2000 due to the

demerger with Boral Ltd1 The company now currently has a market capital of

$8044494000 making it one of the 50 largest companies on the ASX

Australia and is currently listed on the SampP ASX 502 Currently Origin energy

has three main components to its business The first of which is its interest in

exploration and production of LNG (liquefied natural gas)3 The company

currently has multiple exploration interests all around Australia4 is a major

shareholder in the Australia Pacific LNG project owning 3755 and has

invested in building two large trains which will increase Origin energyrsquos ability

to produce more LNG by late 20166 The second art of Origin energyrsquos

business in the retailing of energy the company is Australian retailing leader

in electricity gas and LPG Currently with 43 million customers who give

them a market share of around 29 (based on their client range of Eastern

and Southern Australia)7 The third and substantially smallest major part of

Originrsquos business is focused in renewable and green energy projects as in the

future they are looking to produce for clean energy8 Overall Origin energy is

much more than just a producer of energy products but also a major

distributor This increases the diversity of the company compared to its

competitors This is beneficial into lowering the companyrsquos risk and has a

major impact in the companies future operations

1 ldquoOur Proud Historyrdquo Origin Energy Accessed March 28 2016 httpswwworiginenergycomauaboutwho-we-

areour-storyhistoryhtml final paragraph

2 ldquoOrigin Energy Ltdrdquo ASX Accessed March 28 2016 httpwwwasxcomauasxresearchcompanydoORG

3 ldquoAnnual Report 2015rdquo Origin Energy Ltd September 18 2015

httpswwworiginenergycomaucontentdamoriginaboutinvestors-mediadocsannual-report-2015pdf 11

4 ibid

5 ldquoProject Partnersrdquo Australian Pacific LNG Accessed 28 March httpwwwaplngcomauabout-projectproject-

partners

6 ldquoAnnual Report 2015rdquo Origin Energy Ltd September 18 2015

httpswwworiginenergycomaucontentdamoriginaboutinvestors-mediadocsannual-report-2015pdf 11 7 ibid

8 ibid

3

10 INTRODUCTION

Origin Energy Ltd is a large energy company that started in 2000 due to the

demerger with Boral Ltd1 The company now currently has a market capital of

$8044494000 making it one of the 50 largest companies on the ASX

Australia and is currently listed on the SampP ASX 502 Currently Origin energy

has three main components to its business The first of which is its interest in

exploration and production of LNG (liquefied natural gas)3 The company

currently has multiple exploration interests all around Australia4 is a major

shareholder in the Australia Pacific LNG project owning 3755 and has

invested in building two large trains which will increase Origin energyrsquos ability

to produce more LNG by late 20166 The second art of Origin energyrsquos

business in the retailing of energy the company is Australian retailing leader

in electricity gas and LPG Currently with 43 million customers who give

them a market share of around 29 (based on their client range of Eastern

and Southern Australia)7 The third and substantially smallest major part of

Originrsquos business is focused in renewable and green energy projects as in the

future they are looking to produce for clean energy8 Overall Origin energy is

much more than just a producer of energy products but also a major

distributor This increases the diversity of the company compared to its

competitors This is beneficial into lowering the companyrsquos risk and has a

major impact in the companies future operations

1 ldquoOur Proud Historyrdquo Origin Energy Accessed March 28 2016 httpswwworiginenergycomauaboutwho-we-

areour-storyhistoryhtml final paragraph

2 ldquoOrigin Energy Ltdrdquo ASX Accessed March 28 2016 httpwwwasxcomauasxresearchcompanydoORG

3 ldquoAnnual Report 2015rdquo Origin Energy Ltd September 18 2015

httpswwworiginenergycomaucontentdamoriginaboutinvestors-mediadocsannual-report-2015pdf 11

4 ibid

5 ldquoProject Partnersrdquo Australian Pacific LNG Accessed 28 March httpwwwaplngcomauabout-projectproject-

partners

6 ldquoAnnual Report 2015rdquo Origin Energy Ltd September 18 2015

httpswwworiginenergycomaucontentdamoriginaboutinvestors-mediadocsannual-report-2015pdf 11 7 ibid

8 ibid

4

20 SHAREHOLDERS

Origin Energy is currently listed in the SampPASX 50 and is bound to attract

attention to investors all around the world Many investors would notice the

20142015 financial year brought Origin Energy its worst financial figures in

over a decade9 To combat this the chairman has written a detailed summary

of the companyrsquos activities and future outlook focusing on information about

fixing key financial hiccups in the business and explaining what they did

wrong Overall it is trying to ensure confidence in the shareholder that there

current projects will increase future shareholder value

Reviewing the overall all business summary and its financial history not just

last financial year it would appear that origin energy is targeting investors

looking to invest in a less risky business The increased diversity in the

company is likely to offset the risk of dramatic changes in oil prices which

would in term provide a lower return in boom periods but more steady return

to investors especially when oil and gas prices drop Overall Origin Energy

could be attractive for marginal investors focusing on energy portfolios who

may want to decrease risk or overall for marginal investors looking to invest

in companies with high market capital By viewing APPENDIX C There are 6

investorrsquos who have a holding of shared greater than 1 or more of the

company as HSBC Custody nominees (Australia) limited J P Morgan

nominees limited National nominees limited Citicorp nominees pty limited

and BNP Paribas noms Pty limited all of these companies are classified as

financial institutions10 11 12 13 14 The two largest HSBC Custody Nominees

(Australia) limited who own 20 and JP Morgan Nominees Limited who own

9 ldquoORIGIN ENERGY LIMITEDrdquo Orbis Accessed March 28 httpsorbis-bvdinfo-comdbgwliscurtineduauversion-

2016331Reportserv_CID=106ampcontext=3RZOCF4A4X2JNQ5ampSeqNr=0 profit loss account paragraph 10

ldquoHSBC Custody Nominees (Australia) LtdrdquoBloomberg Accessed 28 March httpwwwbloombergcomprofilescompanies0364142DAU-hsbc-custody-nominees-australia-ltd 11

ldquoJp Morgan Nominees Ltdrdquo Bloomberg Accessed 28 March httpwwwbloombergcomprofilescompanies0817113DAU-jp-morgan-nominees-australia-ltd 12

ldquoNational Nominees Ltdrdquo Bloomberg Accessed 28 March httpwwwbloombergcomprofilescompanies1345390DAU-national-nominees-ltd 13

ldquoCiticorp Niminees Pty Ltdrdquo Bloomberg Accessed 28 March httpwwwbloombergcomprofilescompanies0557541DAU-citicorp-nominees-pty-ltd 14

lsquoCompany overview of BNP Paribas Noms Pty Limitedrdquo Bloomberg Accessed 28 March

5

16 are both subsidiary companies of some of the largest financial

institutions in the world15

It would be safe to assume that large financial companies are not looking to

make poor investments They are marginal investors who are financially and

globally well educated These shares will likely be part of portfoliorsquos run by a

fund manager A good fund manager will want to beat the market in terms of

return and at minimum mimic the market returns Meaning they will be actively

aggressive towards Origin Energy and there operations This puts pressure

on Origin Energy to perform and grow to increase shareholder value this will

be done by increasing the share price over time and by paying out healthy

dividends to keep the investors happy If this is not done then the investors

are likely to sell their shares

15

ldquo2015 Global 2000 The Worldrsquos Largest Banksrdquo Forbes Accessed 28 March

httpwwwbloombergcomresearchstocksprivatesnapshotaspprivcapId=254101406httpwwwforbescomsitesl

iyanchen201505062015-global-2000-the-worlds-largest-banks1a852fe624f1

6

30 INVESTMENT RISK

Origin Energy Ltd (ORG) is large organisation that is affected by many

internal and external factors that expose the company to risk These risks

include those that a normal to large multinational firms such as foreign

exchange risk and interest rate risk This report however will focus on key

factors that have had a significant effect on Origin Energy shares in recent

times These factors include oil price risk and debt risk brought about by a

downgrade in credit rating

31 DECLINING OIL PRICES

The nature of Origin Energyrsquos business as energy provider heavily exposes

the company to risks brought about by change in crude oil prices Being both

producer of Oil and LNG increases the exposure to this risk because change

in oil price affects ldquonot only the price of that commodity but the price of

LNG16

Due to multiple demand and supply side factors Oil prices fell from

USD$10534 at beginning July 2014 to a low of USD$5947 by the end of

June 201517 This had a pronounced effect on Origins share prices which fell

from AUD$1268 to AUD$1047 during the same period18 Using data from

Appendix A figure 1 graphically illustrates the strength of relationship

between Oil prices and Originrsquos share price

16

Melanie Timbrell ldquoWhat a falling oil price means for ASX listed companiesrdquo MyWealth October 24 2014 httpswwwmywealthcommbankcomauinvestingwhy-is-the-oil-price-falling-and-what-does-it-mean-for-energy-co-hottopic201410 17

ldquoCrude Oil Futuresrdquo Investingcom accessed March 28th 2016 httpauinvestingcomcommoditiescrude-oil-

historical-data 18

ldquoOrigin Energy Ltd (ORGAX) Historical Pricesrdquo Yahoo Finance accessed March 20 2016 httpsaufinanceyahoocomqhps=ORGAX

7

Figure 1

Figure 1 displays a definite relationship as Origin Energyrsquos share price mimic

oil futures despite no account for changes in exchange rates Further analysis

reinforces this relationship with a correlation coefficient of 048 calculated

from data in Appendix A thus indicating a moderate positive relationship

Falling oil prices decrease the potential profit of Originrsquos current and future Oil

and LNG producing projects as the present value of projects decrease which

in turn decreases the return to shareholders and future outlook

As this is a market factor out of Origins control it implies that their share prices

will be tied with oil prices strategies to mitigating damage is introduced

Future outlooks for a possible rise in oil prices seem bleak as Jessica Sier

predicts a sustainably low price of oil expected to trade ldquoat USD$40 a barrel

throughout the second quarterrdquo of 201619 As a result Originrsquos cannot hope

that oil prices will recover and have therefore take action to managing the risk

of further drops in the price Origin has hedged ldquo$82 millionrdquo in order to lock in

19

Jessica Sier ldquoCommodity Prices HSBC answers investorsrsquo top 12 questionsrdquo The Age March 22 2016 httpwwwtheagecomaubusinessenergycommodity-prices-hsbc-answers-investors-top-12-questions-20160321-gnnz2uhtml

-1500

-1000

-500

000

500

1000

1500

2000

Per

cen

tage

Ch

ange

(w

eek

ly)

Discrete Weekley Returns ORG Closing Price (AUD) vs Crude Oil Futures (USDBarrel)

Oil ORG

8

a $55 a barrel floor price allowing them to reduce further risk from its

Australian Pacific LNG (APLNG) projects20

32 DOWNGRADED CREDIT RATING

Furthermore Origins increasing debt proposes another major risk to investors

as capital expenditure on massive LNG operations tied with declining oil

prices led to the downgrade of Origins credit rating ldquofrom BBB to the lowest

investment grade of BBB-ldquo during the 2015 financial year21 This comes

about as Origins debt increased from $91 billion at the ldquoend of fiscal 2014rdquo to

ldquo$1186bnrdquo displayed in its half yearly account of for the 2015 fiscal year22

This can be attributed to a ldquomajor cash contributionrdquo of $141bnrdquo to its

Australian Pacific LNG and Browse Basin projects23 This massive

expenditure tied with declining oil prices have led to ldquofalling energy pricesrdquo

which has placed doubt on the ldquoprofitability of the companies massive LNG

operationsrdquo24

A downgrade in a securityrsquos rating occurs when analysis feel that its future

prospectus has weakened in this case due to future industry outlook and

increasing debt A drop to BBB- is a critical as it is only one level above a

speculative rating also known by investors to have junk status25 As securities

typically respond to a downgrade shareholders may view Origin as a riskier

investment and will hope to gain a higher investment yield as a result of taking

on this risk A downgraded credit rating will also affect the cost of borrowing

as banks also view more risk in lending and therefore will change a higher

rate of interest With an increased cost of debt it is important for investors to

20

Angela Macdonald-Smith ldquoOrigin Energy locks in floor for oil prices to cut LNG project riskrdquo The Sydney Morning Herald December 22 2015 httpwwwsmhcomaubusinessenergyorigin-energy-locks-in-floor-for-oil-prices-to-cut-lng-project-risk-20151221-glt03bhtml 21

Michael Janda ldquoOrigin Energy Fortescue ratings downgraded by Standard amp Poorrsquosrdquo ABC News April 22 2015 httpwwwabcnetaunews2015-04-22origin-energy-credit-rating-downgraded-by-s-and-p6412670 22

Melanie Timbrell ldquoOrigin Energy what lies aheadrdquo MyWealth March 05 2015 httpswwwmywealthcommbankcomaucompaniesorigin-energy--what-lies-ahead-insight201503 23

ldquoHalf Yearly Resultsrdquo Origin Energy February 19 2015 httpswwworiginenergycomauaboutinvestors-mediareports-and-resultshalf-year-results-20150219html 24

Michael Janda ldquoOrigin Energy Fortescue ratings downgraded by Standard amp Poorrsquosrdquo ABC News April 22 2015 httpwwwabcnetaunews2015-04-22origin-energy-credit-rating-downgraded-by-s-and-p6412670 25

Ibid

9

consider their position as ldquodebt holderrsquos rank ahead of shareholder with

respect to claim on company assetsrdquo26

Some investors may worry that with a downgrade in credit rating may come

an increased liquidity risk By using figures from the 2015 report to calculate a

current ratio one can gain an understanding in how well Origin is able to pay

of short term debt obligations Using current asset figures of $8373 million and

current liability figures of $5175 million from the annual report and the formula

below the current ratio was calculated27

119862119906119903119903119890119899119905 119877119886119905119894119900 = 119862119906119903119903119890119899119905 119860119904119904119890119905119904

119862119906119903119903119890119899119905 119871119894119886119887119894119897119894119905119890119904

119862119906119903119903119890119899119905 119877119886119905119894119900 = $8373119898119894119897

$5175119898119894119897= 162

Originrsquos current ratio of 162 illustrates that in the short term Origin Energy is

still able to meet its short term debts and are able to liquidate assets if those

labelled needed to be paid now Therefore Origin Energyrsquos liquidity is stable

however it will take more time to view the true effect of this downgraded credit

rating Only when Origin Energy renews current variable interest loans and

take out new loans to fund future projects will this increase cost of debt

40 INVESTOR RETURN FOR 2015 FINANCIAL YEAR

The returns for investors in Origin Energy have been calculated from data

collected during the 2015 financial year All calculations made are assumed to

be for an investor with a portfolio only consisting of Origin shares The total

return to investors in Origin is calculated using the following formula

119877119890119905119906119903119899 119900119891 119868119899119907119890119904119905119898119890119899119905 = 119862119886119901119894119905119886119897 119866119886119894119899119904 119884119890119894119897119889 + 119863119894119907119894119889119890119899119889 119884119890119894119897119889

26

Melanie Timbrell ldquoOrigin Energy what lies aheadrdquo MyWealth March 05 2015 httpswwwmywealthcommbankcomaucompaniesorigin-energy--what-lies-ahead-insight201503 27

ldquoAnnual Report 2015rdquo Origin Energy Ltd September 18 2015 httpswwworiginenergycomaucontentdamoriginaboutinvestors-mediadocsannual-report-2015pdf 70

10

Capital growth measures the change in value of the underlying share price

The change in capital growth is calculated by comparing the value of the stock

at the beginning of the 2015 financial year to its value at the end through the

following formula

119862119886119901119894119905119886119897 119866119886119894119899119904 119884119890119894119897119889 = 119878119875119865 minus 119878119875119868

119878119875119868

Originrsquos share price closed at $1258 on July 1st and by June 30th 2015

closed at $104728 These figures are imputed into the equation as follows

119862119886119901119894119905119886119897 119866119886119894119899119904 119884119890119894119897119889 (119874119877119866) = 1047 minus 1258

1258 = minus1677

Illustrated in the equation above Origin Energy stock price had a negative

capital growth with shareholders realising a 1677 loss during this period

Despite the loss in capital growth shareholders received two fully unfranked

dividends of 25 cents per share on September 26th 2014 and March 21st

201529 Therefore Originrsquos divided yield for the period is calculated by

following sets of equations

119863119894119907119894119889119890119899119889 119884119890119894119897119889 = 1198631 + 1198632

119878119875119868

119863119894119907119894119889119890119899119889 119884119890119894119897119889 = 025 + 025

1047= 477

Shareholders received a 477 dividend yield gain Therefore the total return

on investment can be calculated as followed

119877119890119905119906119903119899 119900119891 119868119899119907119890119904119905119898119890119899119905 = minus1677 + 477 = minus12

Origin produced a -12 return during the 2015 financial year A negative

return on investment means that shareholders suffered a loss as a result of

holding Origins shares In order to gain an idea of Origins relative

performance it is necessary to compare its return to that of the overall market

The market return can be calculated using the All Ordinaries (AORDrsquos) as a

proxy The AORDrsquos is a portfolio consisting of Australiarsquos largest 500 shares

28

ldquoOrigin Energy Ltd (ORGAX) Historical Pricesrdquo Yahoo Finance Accessed March 20 2016 httpsaufinanceyahoocomqhps=ORGAX 29

ldquoAnnual Report 2015rdquo Origin Energy Ltd September 18 2015 httpswwworiginenergycomaucontentdamoriginaboutinvestors-mediadocsannual-report-2015pdf 79

11

by way of market capitalization30 Calculation of the market return using the

employs the use of the following formula

119872119886119903119896119890119905 119877119890119905119906119903119899 = 119860119874119877119863119865 minus 119860119874119877119863119868

119860119874119877119863119868

Using values from Yahoo finance the AORDrsquos closed at $536650 on July 1th

2014 at the beginning of the financial period and closed at $545120 on June

30th 201531

119872119886119903119896119890119905 119877119890119905119906119903119899 = 545120 minus 536650

536650= 158

Therefore the market return for the period was 158 This low return

indicates the general market as a whole had a slow year Although the market

return was low it still out performed Origins -12 loss on investment It is

important to note however that this is purely a comparison of raw figure and

does not account for risk

In order to account for risk a CAPM calculation can be made Note a further

analysis of CAPM will be provided further in section 4 of this report the

calculation of CAPM here is purely used to compare the return of Origin

shares with return of the market CAPM calculates a securities expected rerun

and employs the use of beta which accounts for a securities systematic risk

This therefore allows one to compare securities of differing risk and is shown

in the formula below

119864(119903) = 119877119891 + 120573(119877119898 minus 119877119891)

E(r)=Expected return Rf = Risk free rate (10 year Australian Government

Bond) β=Beta Rm=Risk of the market

A problem arises when using the previously calculated market return for 2015

The market risk premium becomes negative as the return on a 10 year

Australian Government Bond of 256 (used for the risk free rate) is greater

than the 158 market return32 Therefore for simplicity the 10 year market

return of 732 displayed in Appendix D will be used for the market return

119864(119903) = 256 + 089(732 minus 256) = 680

30

ldquoAll Ordinariesrdquo Market Index accessed March 18th 2016 httpwwwmarketindexcomauall-ordinaries

31 Ibid

32 ldquoAustralian Rates and Bondsrdquo Bloomberg accessed March 23 2016 httpwwwbloombergcommarketsrates-

bondsgovernment-bondsaustralia

12

Adjusting for risk-using CAPM illustrates that Origin should be expected to

return 680 to shareholders In reality they are returning -1200 this

illustrates that they are underperforming with regard to their level of

systematic risk as shareholders expect a 680 return CAPM analysis also

illustrates that Origin is underperforming in comparison with the market

Financial managers are judged on their ability to maximise shareholder value

by raising capital efficiently spend capital effetely to produce profitable

projects and positive future cash flows During 2015 Origin made major cash

contributions of $2166 million to its Australia Pacific LNG Project This project

has major exposure to Oil price risks mentioned previously with Origin

Energy needing ldquo$US40 a barrel crude oil prices at an exchange rate of US75

cents to break evenrdquo33 With the decline in Oil price shareholders became

weary of Origins ability to produce future positive cash flows leading to a

decline in share price Origin still remains confident still mentioning that

ldquowithout any distributionsrdquo from APLNG project itrsquos ldquocash flow from the existing

businessesrdquo are expected to be ldquosufficientrdquo to complete ldquointerest and dividend

paymentsrdquo and other ldquocommitted capital expenditure associatedrdquo in running

the business34

The underperformance of Origin Energyrsquos shares can be attributed mostly to

the fall in oil prices that have had heavy consequences on the entire energy

sector This is displayed as the SampPASX Energy (AUD) index fell by -2360

during the 2015 financial year as calculated in Appendix B The seemingly

rocky future for the APLNG project is an unfortunate circumstance of the

decline in market conditions in which the venture operates and therefore

blame cannot be attributed to ORG financial management

Managers do however have the opportunity to mitigate risk by hedging

strategies In recent times ORG has adopted hedging spending ldquo$82million

for hedging contractsrdquo in order to lock in a price floor for oil35 The aim of this

33

Angela Macdonald-Smith ldquoOrigin Energy clears up debt rumoursrdquo The Sydney Morning Herald January 21 2016 httpwwwsmhcomaubusinessenergyorigin-energy-clears-up-debt-rumours-20160121-gmatlbhtml 34

ldquoOrigin clarifies financing arrangementsrdquo Origin Energy Ltd January 21 2016 httpswwworiginenergycomaucontentdamoriginaboutinvestors-mediadocsorigin-asx-media-release-origin-clarifies-financing-arrangementspdf 35

Angela Macdonald-Smith ldquoOrigin Energy locks in floor for oil prices to cut LNG project riskrdquo The Sydney Morning Herald December 22 2015 httpwwwsmhcomaubusinessenergyorigin-energy-locks-in-floor-for-oil-prices-to-cut-lng-project-risk-20151221-glt03bhtml

13

is to protect against any further decline in oil prices and protect the core of

Origins business Origin are also looking to diversify the way they produce

energy to avoid these price risk Recently ORG has entered into a $156

million solar venture that operates in NSW and has some sources of wind

power 36

50 ORIGIN ENERGY LTD COST OF CAPITAL

51 DEBT TO EQUITY RATIO

Origin Energy Ltd is listed only on the ASX current its market equity is equal

to $8854494000 This figure is calculated based of the number of Origins

energyrsquos outstanding share which is 1749900000 and Origin energyrsquos share

price that is $50637

119872119886119903119896119890119905 119862119886119901119894119905119886119897 = 119873119900 119874119906119905119904119905119886119899119889119894119899119892 119878ℎ119886119903119890119904 times 119878ℎ119886119903119890 119875119903119894119888119890

$8854494000 = 1749900000 times $506

In Origin energyrsquos 2015 annual report the company states itrsquos long-term

liabilities (debt greater than 1 year and excluding all overdrafts) as

$1183200000038 From this the currently debtequity ratio of Origin Energy

can be calculated with debt equalling 5720 and equity 4280

119864119902119906119894119905119910 =119872119886119903119896119890119905 119862119886119901119894119905119886119897

119863119890119887119905 + 119872119886119903119896119890119905 119862119886119901119894119905119886119897

119863119890119887119905 = 1 minus 119864119902119906119894119905119910

4280 =$8854494000

$20686494000

5720 = 1 minus 4280

52 COST OF EQUITY

For this case report cost of equity will be calculated in two ways The first

using CAMP method which is based on the companyrsquos risk and market

36

Angela Macdonald-Smith ldquoOrigin Energy to buy swathe of solar power outputrdquo The Sydney Morning Herald March 31 2016 httpwwwsmhcomaubusinessenergyorigin-energy-to-buy-swathe-of-solar-power-output-20160330-gnup9khtml 37

ldquoOrigin Energy Limitedrdquo Reuters Accessed March 28

httpwwwreuterscomfinancestocksoverviewsymbol=ORGAX

38 Origin energy Ltd 2015 Annual Report 30 June 2015

httpwwwasxcomauasxpdf20150918pdf431dx9dqshssvbpdf p86

14

premium the second is the Dividend growth method which evaluates cost of

equity in relation to company growth and the ration between dividends and

share price

521 CAMP (CAPITAL ASSET PRICING MODEL)

119877119890 = 119903119891 + 120573(119903119898 minus 119903119891)

The CAMP (capital asset pricing model) contains two major components

each reflects a portion of which the investor should receive for their

investment The first of which is the risk-free rate denoted by rf this reflects

the minimum amount the investor should return based on the idea of time

value and money as $1 should be worth $10256 one year from now For this

study the rf will equal the 10 year Australian government bond yield which is

currently at 25639 The second part of the CAMP equation accounts for the

companies risk basically the more risky the greater the required return on

equity will be The risk of Origin energy is shown by its beta (120573) which is

currently 08940 This number then needs to be multiplied by the market return

minus the risk-free rate The risk-free rate is subtracted as its already included

in the first part of the equation and cant be multiplied as it is a risk free yield

so Origin energyrsquos risk will not effect that return For this case study the rm is

based of the All Ords return for over the past 10 years which is 73241 With

the information provided Origin energyrsquos cost of equity (Re) using the CAMP

method is equal to 67964

119877119890 = 256 + 089(732 minus 256)

119877119890 = 67964

522 DGM METHOD

119877119890 =1198631198681198811

1198750+ 119892

39

ldquoGovernment Bond Yieldsrdquo Bloomberg Business Markets Bloomberg Accessed March 28

httpwwwbloombergcommarketsrates-bondsgovernment-bondsaustralia

40 ldquoOrigin Energy Limitedrdquo Reuters Accessed March 28

httpwwwreuterscomfinancestocksoverviewsymbol=ORGAX 41

All ordinaries 2016 Yahoo Finance Accessed March 28 httpsaufinanceyahoocomechartss=^AORDsymbol=^AORDrange

15

119892 = (1 minus1198631198681198811

119864119875119878) times (

119873119890119905 119868119899119888119900119898119890

119878ℎ119886119903119890ℎ119900119897119889119890119903119904 119864119902119906119894119905119910)

The Dividend Growth Model (DGM) calculates the return of equity also in an

equation with two parts The first part is the dividend to share price ratio

which will show the amount of equity the company is paying out compared to

its share price In the past 12 months Origin has issued two sets of dividends

which equal to 35 cents (Div1=$035AUD) 42 Origin energyrsquos share price is

equal to $506 So the dividend ratio for Origin Energy is equal to 6917

Calculating Origin energyrsquos growth was challenging due to the company

having an unusually poor financial year by having its first annual financial loss

in over a decade This evidently will not give a true result in the companyrsquos

growth Observing the companies revenue its evident is has slightly dropped

however their EBITDA is fairly stable There is an anomaly in this years

underlying unconsolidated profit which is (-1340000000) which is about 1

billion dollars greater than the four previous years43 Referring to what the

director said in the annual report that a poor investment in a company called

contact energy cost the company $705000000 of which it has how sold all

interest in the company44 It is also likely Originrsquos decrease in revenue is due

to the recent drop in oil amp gas prices as discussed in the Origin energyrsquos risk

However the company generates a majority of its profits in retail (selling of

energy) which is likely keeping the companyrsquos beta relatively low Due to this

year being so unique in the financial history of Origin energy it would be more

accurate to use last financial years profit of $638000000 and EPS of

$048145 causing growth to equal 19624

119892 = (1 minus$035

$0481) times (

$638000000

$8854494000)

119892 = 19624

42

ldquoOrigin Energy Limitedrdquo Reuters Accessed March 28 httpwwwreuterscomfinancestocksoverviewsymbol=ORGAX 43

Origin energy Ltd 2015 Annual Report 30 June 2015 httpwwwasxcomauasxpdf20150918pdf431dx9dqshssvbpdf p127 44

Origin energy Ltd 2015 Annual Report 30 June 2015 httpwwwasxcomauasxpdf20150918pdf431dx9dqshssvbpdf p2 45

Origin energy Ltd 2015 Annual Report 30 June 2015 httpwwwasxcomauasxpdf20150918pdf431dx9dqshssvbpdf p68

16

Now we have the growth we can calculate the Re using the dividend growth

model which estimates the Re to equal 81412

119877119890 =$035

$506+ 19624

119877119890 = 88794

523 CAMP VS DGM

In order to decide on the appropriate method of Origin energyrsquos cost of equity

the companies inside details must be assessed Firstly looking at the table in

Appendix C we see all major shareholders are marginal investors whose job

is to make money of their investments These investors would look to mimic or

beat the market in returns suggesting the CAMP method would satisfy the

marginal investorrsquos as it equals the return of the market compared to the

companies risk Though utility companies such as Origin Energy are fairly

stable over a long period of time and is often suggested these companies

cost of equity can be accurately calculated using the DGM equation46

The Dividend growth model method estimates Originrsquos cost of equity 8794

Its good to note that Origin energy has a beta of 089 which indicates it is not

a very high-risk company making it fairly stable To back the companies

stability over the past 5 years the company has consistently paid $050 ($025

every six months) worth of dividends every year right up until the first

dividend payment in 2016 in which it dropped to $010 (D0=$010) and the

chairman recently stated future dividends could be suspended in order to

stabilize Origin energyrsquos debt levels47 However Origin energy does have the

largest market share for distributing energy to Eastern Australia48 meaning its

revenue will continue to be quite fixed even in times of uncertainty Therefore

46

Brearly RA Myers SC amp Allen F 2014 Principles of Corporate Finance Eleventh Edition McGraw-Hill Irwins P85 Paragraph 1 47

Macdonald-Smith A Origin Energy Shareholders hit with dividend cut after oil slump Sydney morning herald accessed 29 Marchhttpwwwsmhcomaubusinessenergyorigin-energy-shareholders-hit-with-dividend-cut-after-oil-slump-20160215-gmurgxhtml 48

Origin energy Ltd 2015 Annual Report 30 June 2015 httpwwwasxcomauasxpdf20150918pdf431dx9dqshssvbpdf p2

17

for Origin energy the dividend growth model to calculate Re is better suited

because its overall long term stability and history of clear and constant

dividend payments

53 COST OF DEBT

Years Till Maturity Amount Interest Rate

1-2 $309000000 791

2-5 $5082000000 692

5+ $6441000000 3

TOTAL $11832000000 481(weighted

average)

Origin Energy reported it had a long-term debt equalling $11832000000 a

the end of the 20142015 annual period49 Origin Energyrsquos debt is split up into

its appropriate amount in table 1 Individual interest rates or financial

institutions where not named however Origin energy states it pays a fixed

weighted interest of 481 with a range between 22 and 79150 It has

arranged these fixed debts through financial swaps and the creation of hybrid

securities To test the plausibility of this interest rate firstly it is assumed all

debts greater than five years till payoff will cost a slight premium on the yield

of 10 year Australian government bonds its higher because Origin has a

(Baa3) credit rating51 although the company has reduced its debt through

financial swaps52 a plausible estimate is 3 on its 5+ year borrowings The

short term one to two year debts is harder to accurately determine though

looking at short-term competitive car loans a range from 760 to 999 was

49

Origin energy Ltd 2015 Annual Report 30 June 2015 httpwwwasxcomauasxpdf20150918pdf431dx9dqshssvbpdf p86 50

Origin energy Ltd 2015 Annual Report 30 June 2015 httpwwwasxcomauasxpdf20150918pdf431dx9dqshssvbpdf p 90

51 ldquoMoodys Origin Energys HY16 results show weaker metrics for the 6 months rating remains under review for

downgraderdquo Moodyrsquos Accessed 29 March httpswwwmoodyscomresearchMoodys-Origin-Energys-HY16-results-show-weaker-metrics-for-the--PR_343928 52

Origin energy Ltd 2015 Annual Report 30 June 2015 httpwwwasxcomauasxpdf20150918pdf431dx9dqshssvbpdf p 90

Table (1) Origin energy debt and debt interest rate

18

offered from most large financial institutions53 meaning Origins high end range

of 791 appears plausible for its one-two year debts For the medium 2-5

year debt we see the banks are offering Commbank 819 Westpac 582

and ANZ 737 on variable business loans54 So 692 seems plausible

making the weighted average equal 481

54 WACC

119882119860119862119862 = (119864119908 times 119877119890) + (1 minus 119879)(119863119908 times 119877119889)

From the information gathered Origin energyrsquos appropriate WACC (weighted

average cost of Capital) could be calculated The first part of the equation

calculated Origin energyrsquos cost of equity compared to the percentage of equity

to debt the company currently has As calculated earlier Origin energyrsquos is

4280 and by multiplying the chosen DGM methodrsquos calculation of Re

Origins true cost of equity is obtained The next part is Origin energyrsquos cost of

debt as calculated earlier we know there debt percentage is equal to 572

and there cost of debt is 481 There is one additional part to the debt side

of the equation which is that in Australia where corporate tax rate is 30 for

large companyrsquos55 this can be written off lowering Originrsquos WACC Therefore

Origin energyrsquos WACC is equal to 54104

119882119860119862119862 = (4280 times 88794) + (1 minus 30)(5720 times 481)

119882119860119862119862 = 56897

55 ANALYSIS OF WACC

Origin energy has a WACC of 56896 which indicates that Origin energy

should be paying back $1056896 for every dollar invested in the company

Indicating the overall return investors are hoping for is ~312 higher than

any risk free investments Origin energyrsquos WACC is not overly high this is

likely reflected throughout Australia as the country has itrsquos cash rates since

53

ldquoCompare car loans interest raterdquo Infochoice Accessed 3 April httpwwwinfochoicecomaupersonal-loanscar-loaninterest-rate-comparison 54

ldquoCompare business loans fixedrdquo Canstar Accessed 3 April httpwwwcanstarcomaucomparebusiness-loans-commercially-securedprofile=Secured+by+commercial+propertyampamount=1000000ampstate=NSW 55

ldquoCompany Tax Ratesrdquo Australian Government Australian Tax Office Accessed 28 March httpswwwatogovauratescompany-tax

19

the GFC (Global Financial Crisis) at 256 leading to a decrease in cost of

debt and bond yields Origin Energyrsquos WACC is low mainly due to there low

cost of debt compared to cost of equity This is quite important as the low cost

of debt allows Origin Energy to borrow more money at less risk and

borrowing more will not majorly affect the companies WACC However it can

be dangerous to borrow large amounts due to the companyrsquos ability to pay

back their debt Origin Energyrsquos still needs to invest as there not a risk free

company however there current WACC indicates there unlikely to spend

large amounts of cash on new projects this is not directly related to their

WACC either but also the general market there in as shown in the companyrsquos

risk they are subject to the current low oil prices and the company is likely to

be restructuring itself to increase its annual profit The company has also just

completed major investments in the past year costing the company large

amounts of money leading to an increased debtequity ratio however as

stated before in Origin energyrsquos case a high amount of debt is not a huge

cause for concern however the chairman recently stated the company

wanted to reduce its debt57 Indicating itrsquos likely no new major projects are

going to take place in the near future

56

ldquoCash Raterdquo Reserve Bank of Australia Accessed 30 March httpwwwrbagovaustatisticscash-rate 57

Macdonald-Smith A Origin Energy Shareholders hit with dividend cut after oil slump Sydney morning herald accessed 29 March httpwwwsmhcomaubusinessenergyorigin-energy-shareholders-hit-with-dividend-cut-after-oil-slump-20160215-gmurgxhtml

20

60 REFERENCES

ASX ldquoOrigin Energy Ltdrdquo Accessed March 28 2016 httpwwwasxcomauasxresearchcompanydoORG

Australia Pacific LNG ldquoProject Partnersrdquo Accessed March 28 2016 httpwwwaplngcomauabout-projectproject-partners Australian Tax Office ldquoCompany Tax Rates Australian Governmentrdquo Accessed 28 March 2016 httpswwwatogovauratescompany-tax Bloomberg ldquoAustralian Rates and Bondsrdquo Accessed March 23 2016 httpwwwbloombergcommarketsrates-bondsgovernment-bondsaustralia

Bloomberg ldquoCompany overview of BNP Paribas Noms Pty Limitedrdquo Accessed 28 March 2016 httpwwwbloombergcomresearchstocksprivatesnapshotaspprivcapId=254101406

Bloomberg ldquoGovernment Bond Yields Bloomberg Business Marketsrdquo Accessed March 28 2016 httpwwwbloombergcommarketsrates-bondsgovernment-bondsaustralia Bloomberg ldquoHSBC Custody Nominees (Australia) Ltdrdquo Accessed March 28 2016 httpwwwbloombergcomprofilescompanies0364142DAU-hsbc-custody-nominees-australia-ltd

Bloomberg ldquoNational Nominees Ltdrdquo Accessed March 28 2016 httpwwwbloombergcomprofilescompanies1345390DAU-national-nominees-ltd

Brearly RA Myers SC amp Allen F 2014 Principles of Corporate Finance Eleventh Edition McGraw-Hill Irwins

Canstar ldquoCompare business loans fixedrdquo Accessed 3 April 2016 httpwwwcanstarcomaucomparebusiness-loans-commercially-securedprofile=Secured+by+commercial+propertyampamount=1000000ampstate=NSW

Forbes ldquo2015 Global 2000 The Worldrsquos Largest Banksrdquo Accessed 28

March 2016

19

the GFC (Global Financial Crisis) at 256 leading to a decrease in cost of

debt and bond yields Origin Energyrsquos WACC is low mainly due to there low

cost of debt compared to cost of equity This is quite important as the low cost

of debt allows Origin Energy to borrow more money at less risk and

borrowing more will not majorly affect the companies WACC However it can

be dangerous to borrow large amounts due to the companyrsquos ability to pay

back their debt Origin Energyrsquos still needs to invest as there not a risk free

company however there current WACC indicates there unlikely to spend

large amounts of cash on new projects this is not directly related to their

WACC either but also the general market there in as shown in the companyrsquos

risk they are subject to the current low oil prices and the company is likely to

be restructuring itself to increase its annual profit The company has also just

completed major investments in the past year costing the company large

amounts of money leading to an increased debtequity ratio however as

stated before in Origin energyrsquos case a high amount of debt is not a huge

cause for concern however the chairman recently stated the company

wanted to reduce its debt57 Indicating itrsquos likely no new major projects are

going to take place in the near future

56

ldquoCash Raterdquo Reserve Bank of Australia Accessed 30 March httpwwwrbagovaustatisticscash-rate 57

Macdonald-Smith A Origin Energy Shareholders hit with dividend cut after oil slump Sydney morning herald accessed 29 March httpwwwsmhcomaubusinessenergyorigin-energy-shareholders-hit-with-dividend-cut-after-oil-slump-20160215-gmurgxhtml

20

60 REFERENCES

ASX ldquoOrigin Energy Ltdrdquo Accessed March 28 2016 httpwwwasxcomauasxresearchcompanydoORG

Australia Pacific LNG ldquoProject Partnersrdquo Accessed March 28 2016 httpwwwaplngcomauabout-projectproject-partners Australian Tax Office ldquoCompany Tax Rates Australian Governmentrdquo Accessed 28 March 2016 httpswwwatogovauratescompany-tax Bloomberg ldquoAustralian Rates and Bondsrdquo Accessed March 23 2016 httpwwwbloombergcommarketsrates-bondsgovernment-bondsaustralia

Bloomberg ldquoCompany overview of BNP Paribas Noms Pty Limitedrdquo Accessed 28 March 2016 httpwwwbloombergcomresearchstocksprivatesnapshotaspprivcapId=254101406

Bloomberg ldquoGovernment Bond Yields Bloomberg Business Marketsrdquo Accessed March 28 2016 httpwwwbloombergcommarketsrates-bondsgovernment-bondsaustralia Bloomberg ldquoHSBC Custody Nominees (Australia) Ltdrdquo Accessed March 28 2016 httpwwwbloombergcomprofilescompanies0364142DAU-hsbc-custody-nominees-australia-ltd

Bloomberg ldquoNational Nominees Ltdrdquo Accessed March 28 2016 httpwwwbloombergcomprofilescompanies1345390DAU-national-nominees-ltd

Brearly RA Myers SC amp Allen F 2014 Principles of Corporate Finance Eleventh Edition McGraw-Hill Irwins

Canstar ldquoCompare business loans fixedrdquo Accessed 3 April 2016 httpwwwcanstarcomaucomparebusiness-loans-commercially-securedprofile=Secured+by+commercial+propertyampamount=1000000ampstate=NSW

Forbes ldquo2015 Global 2000 The Worldrsquos Largest Banksrdquo Accessed 28

March 2016

20

60 REFERENCES

ASX ldquoOrigin Energy Ltdrdquo Accessed March 28 2016 httpwwwasxcomauasxresearchcompanydoORG

Australia Pacific LNG ldquoProject Partnersrdquo Accessed March 28 2016 httpwwwaplngcomauabout-projectproject-partners Australian Tax Office ldquoCompany Tax Rates Australian Governmentrdquo Accessed 28 March 2016 httpswwwatogovauratescompany-tax Bloomberg ldquoAustralian Rates and Bondsrdquo Accessed March 23 2016 httpwwwbloombergcommarketsrates-bondsgovernment-bondsaustralia

Bloomberg ldquoCompany overview of BNP Paribas Noms Pty Limitedrdquo Accessed 28 March 2016 httpwwwbloombergcomresearchstocksprivatesnapshotaspprivcapId=254101406

Bloomberg ldquoGovernment Bond Yields Bloomberg Business Marketsrdquo Accessed March 28 2016 httpwwwbloombergcommarketsrates-bondsgovernment-bondsaustralia Bloomberg ldquoHSBC Custody Nominees (Australia) Ltdrdquo Accessed March 28 2016 httpwwwbloombergcomprofilescompanies0364142DAU-hsbc-custody-nominees-australia-ltd

Bloomberg ldquoNational Nominees Ltdrdquo Accessed March 28 2016 httpwwwbloombergcomprofilescompanies1345390DAU-national-nominees-ltd

Brearly RA Myers SC amp Allen F 2014 Principles of Corporate Finance Eleventh Edition McGraw-Hill Irwins

Canstar ldquoCompare business loans fixedrdquo Accessed 3 April 2016 httpwwwcanstarcomaucomparebusiness-loans-commercially-securedprofile=Secured+by+commercial+propertyampamount=1000000ampstate=NSW

Forbes ldquo2015 Global 2000 The Worldrsquos Largest Banksrdquo Accessed 28

March 2016

21

httpwwwbloombergcomresearchstocksprivatesnapshotaspprivcapId=2

54101406httpwwwforbescomsitesliyanchen201505062015-global-

2000-the-worlds-largest-banks1a852fe624f1

Infochoice ldquoCompare car loans interest raterdquo Accessed 3 April 2016 httpwwwinfochoicecomaupersonal-loanscar-loaninterest-rate-comparison Investingcom ldquoCrude Oil Futuresrdquo Accessed March 28 2016 httpauinvestingcomcommoditiescrude-oil-historical-data

Janda Michael ldquoOrigin Energy Fortescue ratings downgraded by Standard amp Poorrsquosrdquo ABC News April 22 2015 httpwwwabcnetaunews2015-04-22origin-energy-credit-rating-downgraded-by-s-and-p6412670

Jp Morgan Nominees Ltd Bloomberg Accessed 28 March httpwwwbloombergcomprofilescompanies0817113DAU-jp-morgan-nominees-australia-ltd

Macdonald-Smith A Origin Energy Shareholders hit with dividend cut after oil slump Sydney morning herald accessed 29 March httpwwwsmhcomaubusinessenergyorigin-energy-shareholders-hit-with-dividend-cut-after-oil-slump-20160215-gmurgxhtml Macdonald-Smith Angela ldquoOrigin Energy clears up debt rumoursrdquo The Sydney Morning Herald January 21 2016 httpwwwsmhcomaubusinessenergyorigin-energy-clears-up-debt-rumours-20160121-gmatlbhtml Macdonald-Smith Angela ldquoOrigin Energy locks in floor for oil prices to cut LNG project riskrdquo The Sydney Morning Herald December 22 2015 httpwwwsmhcomaubusinessenergyorigin-energy-locks-in-floor-for-oil-prices-to-cut-lng-project-risk-20151221-glt03bhtml Macdonald-Smith Angela ldquoOrigin Energy to buy a swathe of solar power outputrdquo The Sydney Morning Herald March 21 2016 httpwwwsmhcomaubusinessenergyorigin-energy-to-buy-swathe-of-solar-power-output-20160330-gnup9khtml Market Index ldquoAll Ordinariesrdquo Accessed March 18th 2016 httpwwwmarketindexcomauall-ordinaries

Orbis ldquoOrigin Energy Limitedrdquo Accessed March 28 2016 httpsorbis-bvdinfo-comdbgwliscurtineduauversion-

22

2016331Reportserv_CID=106ampcontext=3RZOCF4A4X2JNQ5ampSeqNr=0 profit loss account paragraph Origin Energy Ltd ldquoAnnual Report 2015rdquo September 18 2015 httpswwworiginenergycomaucontentdamoriginaboutinvestors-mediadocsannual-report-2015pdf Origin Energy Ltd ldquoHalf Yearly Resultsrdquo February 19 2015 httpswwworiginenergycomauaboutinvestors-mediareports-and-resultshalf-year-results-20150219html Origin Energy Ltd ldquoOrigin clarifies financing arrangementsrdquo January 21 2016 httpswwworiginenergycomaucontentdamoriginaboutinvestors-mediadocsorigin-asx-media-release-origin-clarifies-financing-arrangementspdf Origin Energy Ltd ldquoOur Proud Historyrdquo Accessed March 28 2016 httpswwworiginenergycomauaboutwho-we-areour-storyhistoryhtml

Reserve Bank of Australia ldquoCash Raterdquo Accessed 30 March 2016 httpwwwrbagovaustatisticscash-rate Citicorp Niminees Pty Ltd Bloomberg Accessed 28 March httpwwwbloombergcomprofilescompanies0557541DAU-citicorp-nominees-pty-ltd Reuters ldquoOrigin Energy Limitedrdquo Accessed March 28 2016 httpwwwreuterscomfinancestocksoverviewsymbol=ORGAX Sier Jessica ldquoCommodity Prices HSBC answers investorsrsquo top 12 questionsrdquo The Age March 22 2016 httpwwwtheagecomaubusinessenergycommodity-prices-hsbc-answers-investors-top-12-questions-20160321-gnnz2uhtml

Timbrell Melanie ldquoOrigin Energy what lies aheadrdquo MyWealth March 05 2015 httpswwwmywealthcommbankcomaucompaniesorigin-energy--what-lies-ahead-insight201503 Timbrell Melanie ldquoWhat a falling oil price means for ASX listed companiesrdquo MyWealth October 24 2014 httpswwwmywealthcommbankcomauinvestingwhy-is-the-oil-price-falling-and-what-does-it-mean-for-energy-co-hottopic201410

Yahoo Finance ldquoAll Ordinaries (AORDrsquos)rdquo Accessed March 28 2016

httpsaufinanceyahoocomechartss=^AORDsymbol=^AORDrange

Yahoo Finance ldquoOrigin Energy Ltd (ORGAX) Historical Pricesrdquo Accessed March 20 2016 httpsaufinanceyahoocomqhps=ORGAX

23

70 APPENDIX

APPENDIX A Discrete return on USDBarrel Oil Price and Origin Energy

Closing Price

Date

Origin

Energy

Ltd

Close

Price58

Futures Oil

Closing Price

(USD$Barrel)59

Return on

Origin

Energy

Ltd

Return on

Oil Price

29062015 9876 5804

22062015 11311 5893 1453 153

15062015 11259 5873 -046 -034

09062015 10988 5823 -241 -085

01062015 11722 5933 668 189

25052015 11206 5911 -440 -037

18052015 11294 5906 079 -008

11052015 11171 5875 -109 -052

04052015 11574 5845 361 -051

27042015 11425 5652 -129 -330

20042015 10926 5485 -437 -295

13042015 10515 5147 -376 -616

07042015 9912 5117 -573 -058

30032015 9798 4761 -115 -696

23032015 10191 4533 401 -479

16032015 9973 4285 -214 -547

09032015 10419 4925 447 1494

02032015 10804 4871 370 -110

23022015 1076 4867 -041 -008

58

ldquoOrigin Energy Ltd (ORGAX) Historical Pricesrdquo Yahoo Finance accessed March 20 2016 httpsaufinanceyahoocomqhps=ORGAX 59

ldquoCrude Oil Futuresrdquo Investingcom accessed March 28th 2016 httpauinvestingcomcommoditiescrude-oil-

historical-data

24

16022015 10795 5292 033 873

09022015 10445 5165 -324 -240

02022015 9666 4667 -746 -964

27012015 9369 4481 -307 -399

19012015 9273 4764 -102 632

12012015 9736 4562 499 -424

05012015 10323 4968 603 890

29122014 10349 529 025 648

15122014 9474 5502 -845 401

08122014 992 6278 471 1410

01122014 10235 6372 318 150

24112014 1202 7545 1744 1841

17112014 1174 7471 -233 -098

10112014 1258 7713 716 324

03112014 12518 7808 -049 123

27102014 12711 7944 154 174

20102014 12492 8155 -172 266

13102014 12562 8407 056 309

06102014 12947 8876 306 558

29092014 12903 9274 -034 448

22092014 13166 912 204 -166

15092014 13218 9063 039 -063

08092014 13796 918 437 129

01092014 13682 9551 -083 404

25082014 13411 9305 -198 -258

18082014 12361 9581 -783 297

11082014 12028 9737 -269 163

04082014 12326 9743 248 006

28072014 12457 1009 106 356

21072014 12483 10265 021 173

14072014 12623 10022 112 -237

07072014 12597 10319 -021 296

25

APPENDIX A (Continued)

Correlation Coefficient calculated using the following Excel Formula

=Correl(array 1 array 2)

=Correl(Return on Origin Energy Ltd Shares Return on Oil Price)

=048

APPENDIX B Energy sector return

Here values for the SampPASX Energy (AUD) sector were used with initial

value of 1434749 used from July 1 2014 and final value of 1094575 from

June 30 2015 used60

119864119899119890119903119892119910 119878119890119888119905119900119903 119877119890119905119906119903119899 = 119864119899119890119903119892119910 119878119890119888119905119900119903119865 minus 119864119899119890119903119892119910 119878119890119888119905119900119903119868

119864119899119890119903119892119910 119878119890119888119905119900119903119868

Energy Sector F = 1094575

Energy Sector I = 1434749

119864119899119890119903119892119910 119878119890119888119905119900119903 119877119890119905119906119903119899 = 1094575 minus 1434749

1434749= minus2360

60

ldquoSampPASX Energy (AUD)rdquo SampP Dow Jones Indices accessed March 31 2016 httpauspindicescomindicesequitysp-asx-200-energy-sector

26

APPENDIX C Origin Energy Ltd Top 20 Shareholders

Top 20 shareholders of Origin Energy Ltd As of 30th June 201561

61

Origin Energy Ltd ldquoAnnual Report 2015rdquo September 18 2015 httpswwworiginenergycomaucontentdamoriginaboutinvestors-mediadocsannual-report-2015pdf P118

25

APPENDIX A (Continued)

Correlation Coefficient calculated using the following Excel Formula

=Correl(array 1 array 2)

=Correl(Return on Origin Energy Ltd Shares Return on Oil Price)

=048

APPENDIX B Energy sector return

Here values for the SampPASX Energy (AUD) sector were used with initial

value of 1434749 used from July 1 2014 and final value of 1094575 from

June 30 2015 used60

119864119899119890119903119892119910 119878119890119888119905119900119903 119877119890119905119906119903119899 = 119864119899119890119903119892119910 119878119890119888119905119900119903119865 minus 119864119899119890119903119892119910 119878119890119888119905119900119903119868

119864119899119890119903119892119910 119878119890119888119905119900119903119868

Energy Sector F = 1094575

Energy Sector I = 1434749

119864119899119890119903119892119910 119878119890119888119905119900119903 119877119890119905119906119903119899 = 1094575 minus 1434749

1434749= minus2360

60

ldquoSampPASX Energy (AUD)rdquo SampP Dow Jones Indices accessed March 31 2016 httpauspindicescomindicesequitysp-asx-200-energy-sector

26

APPENDIX C Origin Energy Ltd Top 20 Shareholders

Top 20 shareholders of Origin Energy Ltd As of 30th June 201561

61

Origin Energy Ltd ldquoAnnual Report 2015rdquo September 18 2015 httpswwworiginenergycomaucontentdamoriginaboutinvestors-mediadocsannual-report-2015pdf P118

26

APPENDIX C Origin Energy Ltd Top 20 Shareholders

Top 20 shareholders of Origin Energy Ltd As of 30th June 201561

61

Origin Energy Ltd ldquoAnnual Report 2015rdquo September 18 2015 httpswwworiginenergycomaucontentdamoriginaboutinvestors-mediadocsannual-report-2015pdf P118

27

APPENDIX D Australian All Ordinary Return over 10 years

AORD return from 6 March 2006 to 21 March 2016 equal to 73262

62

All ordinaries 2016 Yahoo Finance Accessed March 28

httpsaufinanceyahoocomechartss=^AORDsymbol=^AORDrange