Origin Energy's Strategic Crossroads: Australian Renewables Rise Amid UK Headwinds – Is Now the Time to Buy?

Origin Energy’s May 2025 guidance update reveals a stark divergence in performance between its core Australian Energy Markets division and its UK-focused Octopus Energy subsidiary. While the former benefits from operational excellence and energy transition tailwinds, the latter faces near-term headwinds tied to weather anomalies and regulatory shifts. For investors, this split creates a critical decision point: Is the 4.7% dip in Origin’s share price a fleeting overreaction to Octopus’s UK woes, or a warning sign of deeper risks? Here’s why the former – and not the latter – appears the more compelling narrative.

Operational Strengths vs. Temporary UK Challenges

The Energy Markets division, which accounts for Origin’s domestic energy trading and generation, has secured an upgraded FY25 EBITDA guidance of A$1.30 billion–A$1.40 billion, up from its earlier range. This reflects operational improvements including robust electricity generation volumes, favorable market conditions, and lower green certificate costs. The company’s pivot to renewables – with 5GW of projects in development and A$1.5 billion allocated to battery storage – is already yielding results, as seen in its statutory profit rise to A$1.017 billion in H1 2025.

In contrast, Octopus Energy’s FY25 guidance now projects a loss of A$0–A$100 million, a stark reversal from prior expectations. The primary culprit? Unusually warm UK weather in early 2024, which slashed electricity and gas demand. March and April temperatures hit record highs, erasing A$50 million in potential revenue. Compounding this were one-off costs tied to the UK’s 2022 energy price guarantee subsidy and investments in non-UK markets. Yet, despite these headwinds, Octopus continues to grow its customer base: UK retail customers rose 10% to 7.5 million, while non-UK accounts doubled to 2.5 million. The Kraken platform’s expansion to 74 million contracted accounts – including a major US partnership with National Grid – underscores its long-term growth potential.

Investment Implications: Asymmetric Risks and Rewards

The key question for investors is whether Origin’s Australian strengths can offset Octopus’s UK risks. The answer lies in the sector-specific performance divergence:

1. Australian Energy Transition Leadership:
2. Origin’s renewable projects and battery investments position it to capitalize on Australia’s energy transition. With the government’s push for net-zero by 2050, demand for solar, wind, and storage solutions is surging.

4. The company’s wholesale portfolio and gas infrastructure also provide a stable cash flow base, insulated from UK market volatility.

5. Octopus’s UK Challenges: Temporary or Structural?

6. Weather-related losses are cyclical, not structural. The UK’s third-warmest April on record was an outlier, and energy demand tends to normalize over time.
7. Regulatory headwinds like the energy price guarantee are one-off costs, not recurring issues. Meanwhile, Octopus’s customer growth and platform expansion signal a robust underlying business.

Valuation: A Buying Opportunity at A$10.53?

Origin’s shares have dipped 4.7% on the guidance update, but this appears to overstate risks. At A$10.53, the stock trades at a 12.4x forward P/E ratio – below its five-year average of 14.8x and well below peers like Woodside (16.2x). Meanwhile, analyst sentiment remains mixed (3 Buy, 5 Hold, 3 Sell), but a recent Buy rating with a A$12.10 price target highlights undervaluation.

Historically, when Origin upgraded its EBITDA guidance during earnings, a 60-day hold strategy delivered an average return of 47% with a maximum drawdown of 23.4%, suggesting the current dip aligns with a favorable entry point. The strategy’s Sharpe Ratio of 0.61 further indicates reasonable risk-adjusted returns, reinforcing the case for patient investors.

Crucially, the Australian and UK divisions are not zero-sum: Energy Markets’ operational improvements and Octopus’s global expansion are additive, not mutually exclusive. Even if Octopus underperforms in FY25, Origin’s core business and energy transition bets are too compelling to ignore.

Conclusion: Seize the Asymmetric Opportunity

Origin Energy’s mixed guidance is a classic case of asymmetric risk-reward: near-term UK headwinds are temporary and priced into the stock, while Australian renewables and battery plays offer multiyear growth. At current levels, the dip presents a strategic entry point for investors focused on energy transition leadership. With a P/E below its historical average and a dividend yield of 4.2%, Origin offers both capital appreciation potential and income stability.

The question isn’t whether Origin’s UK division faces challenges – it’s whether the market’s reaction to them ignores the company’s stronger, faster-growing core. The answer, in this analyst’s view, is a resounding yes. For those willing to look past the headlines, Origin’s shares now offer a rare chance to buy a sector leader at a discount.

Action: Consider accumulating Origin Energy shares at current levels, with a price target of A$12.10+ by end-2025. Monitor for execution on its 5GW renewable pipeline and Octopus’s US market traction as key catalysts.