Hi Guys,
A well-timed question given MM took profit in APA Group (APA) this week, for our Active Growth Portfolio. While we continue to like Australia’s largest energy infrastructure owner, the stock has rallied almost +50% since we initiated the position in late 2024 and, in our view, much of the reasoning behind our initial purchase is now baked into the cake. As investors become more comfortable moving up the risk curve, we think APA may struggle to outperform over the coming months.
- In the short-term, we wouldn’t be surprised to see APA rotate back under $10, where it was trading earlier this month.
That said, we’re still comfortable holding the stock for income, with its defensive earnings profile and attractive yield continuing to appeal.
In terms of ORG and AGL our view is similar as the market reduces its exposure to the defensives although both bring different stories:
AGL Energy (AGL) – the stock has drifted lower over recent months after surging following its 1H result discussed here. AGL’s recent weakness appears less about operational execution and more about a market that is questioning the earnings outlook beyond FY26. Lower wholesale power prices, ongoing transition costs and uncertainty around future margins. Around $8.50, the stock is now trading almost 20% below its recent highs despite management lifting the lower end of guidance earlier this year.
AGL is expected to deliver flat revenue around $14bn over the coming years helping it maintain a yield around 5.7% fully franked over the coming 12-months. It’s a yield stock, rather than a growth play.
- MM remains long and bullish towards AGL for income around $8.50.
Origin Energy (ORG) – Its recent June quarter update was largely a tale of two businesses. APLNG continues to perform well, with production in line with expectations and the potential for stronger east coast gas prices if winter demand absorbs the current supply surplus. The business has also strengthened its balance sheet through debt refinancing and remains well positioned to pursue future growth opportunities.
However, these positives were overshadowed by another downgrade to Octopus Energy guidance, with FY26 EBITDA expectations cut due to regulatory changes in the UK. While the downgrade will weigh on near-term earnings, we don’t believe it materially changes the long-term investment case, with strong customer growth, international expansion and the continued rollout of Kraken remaining the key drivers of value.
We see value in ORG below $10 supported by its 5.5% fully franked yield, strong balance sheet and exposure to both traditional energy markets and the long-term growth opportunity within Octopus Energy.
