Unlocking Hidden Value: How Octopus Energy's Kraken Demerger Fuels Origin Energy's Surge

The recent 6% surge in Origin Energy's stock price has investors buzzing about the strategic implications of Octopus Energy's planned demerger of its tech arm, Kraken Technologies. This move, which could unlock billions in latent value, highlights a broader trend in utilities: the separation of high-growth tech subsidiaries from traditional energy businesses. For Origin, which holds a 23% stake in Octopus, the demerger represents a rare opportunity to capitalize on a $14 billion (£10.25 billion) valuation for Kraken—a valuation that could redefine how investors view crossover investments in utilities and technology.

The Demerger Playbook: Valuation Validation and Minority Stake Power

Octopus Energy's plan to spin off Kraken—a cloud-based AI operating system used by energy, water, and telecom providers—within the next 12 months is a masterclass in value realization. By separating the tech arm from its core retail energy business, Octopus aims to validate Kraken's standalone worth, which banking sources suggest could hit $14 billion. This valuation is underpinned by Kraken's 70 million global customer accounts (targeting 100 million by 2027) and its licensing deals with giants like National Grid in the U.S. and EON in Europe.

For Origin Energy, the key lies in its 23% stake in Octopus. Post-demerger, this stake will translate into a proportional holding in Kraken, effectively giving Origin exposure to a high-growth tech asset that operates independently of Octopus's volatile retail energy markets. The demerger also includes a 20% minority stake sale to external investors—a move that could both de-risk the valuation and provide liquidity to existing shareholders.

Why This Matters for Utilities and Tech Investors

The Kraken demerger underscores a critical shift: utilities are no longer just about kilowatts and pipelines. Companies like Octopus are leveraging AI and software to build scalable tech platforms that transcend traditional energy boundaries. Kraken's global expansion into water and telecoms—markets with higher margins and recurring revenue models—positions it as a hybrid utility-technology play. For investors, this structure offers a compelling risk/reward profile:

• Valuation Metrics: Kraken's $14 billion valuation implies a 10x revenue multiple, which is competitive with SaaS peers like Snowflake (9.5x) but lower than cloud pure-plays like Twilio (14x). This leaves room for upside if Kraken's customer growth accelerates.
• Diversification Benefits: By separating Kraken, Octopus mitigates regulatory conflicts of interest (e.g., selling tech to competitors like EDF Energy) and opens doors for new partnerships.
• Geographic Reach: With 6.5 million U.S. customers via National Grid and a growing Asian footprint, Kraken's expansion into high-growth markets reduces reliance on any single region.

Risks and Considerations

While the demerger is a bullish catalyst, risks remain:
1. Regulatory Hurdles: Kraken's global ambitions face scrutiny in markets like the U.S., where data privacy laws and antitrust concerns could delay licenses.
2. Market Saturation: The AI software space is crowded, and Kraken's success hinges on differentiation in a saturated market.
3. Dilution Risks: The 20% stake sale to external investors could dilute Origin's proportional ownership, though this is offset by the potential to “unlock” Kraken's value from Octopus's lower-margin retail business.

Investment Thesis: A Wait-and-See Approach for ASX Investors

For Australian investors, Origin's 23% stake in Octopus makes it a proxy for Kraken's upside. However, timing is critical. The demerger's completion within 12 months suggests near-term catalysts, but valuation validation (via the stake sale) will be a key milestone.

• Buy Signal: Consider adding to Origin's position if Kraken's valuation exceeds $14 billion post-demerger or if Octopus announces new partnerships in Asia/Europe.
• Hold Signal: Wait for clarity on regulatory approvals and customer growth metrics. A pullback below $7.50 (ASX: ORG.AX) could present a better entry.
• Risk Management: Pair Origin with short positions in traditional utilities (e.g., AGL Energy) to hedge against energy market volatility.

Conclusion: The Future of Utilities Is Software-Driven

Octopus Energy's Kraken demerger isn't just a corporate restructuring—it's a blueprint for utilities to monetize their tech assets. For Origin, the 23% stake in Octopus now includes a $3.2 billion+ (23% of $14 billion) claim on Kraken's value, a far cry from its original investment. As the world shifts toward AI-driven infrastructure, investors should look beyond traditional metrics to assess utilities with hidden tech gems. The Kraken model could be the next wave of value creation in an industry ripe for reinvention.

For ASX investors, Origin Energy's recent surge is just the start. The real payoff comes when Kraken's valuation gains translate into tangible shareholder returns—and that moment may be closer than it seems.