Why we own Origin Energy
July 2024
Origin Energy has recovered from the uncertainty of a failed takeover bid to regain its spark with an 18% return in the June quarter, including both dividends and capital gains.
The energy company was in the headlines last year after the controversial bid from an offshore consortium was blocked by AustralianSuper.
Its subsequent performance on the stockmarket is validation of the decision early in 2024 to include it in Cornerstone’s parcel of 30 direct shares.
Origin Energy is Australia’s largest energy retailer, with 4.5 million electricity, gas, LPG and broadband customers across Australia and the Pacific.1
Its recent gains are similar to those enjoyed by other energy companies such as AGL Energy. The sector was previously overlooked by investors but it was among the best performer on the ASX in the March quarter. A combination of factors, such as a recovery in wholesale energy prices, drove the sector’s gains.
So how does Cornerstone choose the direct shares in its portfolio? They are selected by an algorithm which identifies holdings based on stock characteristics considered likely to deliver risk-adjusted returns in a portfolio context over the long term.
These five characteristics – or “factors” in technical terms – are value, quality, low volatility, momentum and growth. The idea is that a selection of shares which each display some of these characteristics can be brought together in a portfolio which outperforms over time.
We’re not alone in using this kind of “multi-factor” model – it’s a widely-used practice in the funds management industry.
Origin Energy was selected by Cornerstone because it fits the bill for momentum and value characteristics. It currently constitutes around 1.8% of our direct equity holdings.
Part of AustralianSuper’s reluctance to support last year’s takeover bid was its belief that Origin Energy has a significant role to play in the transition to renewable energy – due to the nature of its existing business. That meant, according to AustralianSuper, that the bid was substantially below its estimate of the company’s long-term value.
Origin Energy’s share price was $10.86 at June 30 2024 versus $8.41 exactly a year earlier. It has a dividend yield of 5.14%.
1 Source: Origin 2023 annual report
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