Monday January 07, 2013
by David Dittman, editor Australian Edge
Our top conservative idea Origen Energy Ltd. (OGFGF), one of Australia's largest energy retailers. Our top speculative idea is Our top idea for 2013 for aggressive investors is Oil Search Ltd. (OISHF), an aggressive growth story with a modest income component.
Dividends paid by both stocks are “qualified” for US tax purposes. The Australian government withholds 15 percent, based on the US-Australia tax treaty on double taxation.
Origen Energy has 4.4 million electricity, natural gas and liquefied petroleum gas (LPG) customers; over the long term Origin’s energy markets business gives it a solid foundation for predictable cash flow.
Through Australia Pacific LNG, a joint venture with ConocoPhillips and Sinopec, Origen is developing one of Australia's largest coal seam gas to liquefied natural gas projects.
This project will deliver a strong boost to earnings and cash flow when it’s completed; it is on track to deliver first gas in 2015.
Management has forecast long-term earnings per share growth of 10 percent to 15 percent, which should underpin solid dividend growth as well.
Origen recently signed a long-term deal to supply natural gas to two of China-based base metals miner MMG Ltd’s Queensland, Australia, projects at more than double the current gas price and about 50 percent higher than the previous high for a long-term supply deal.
This demonstrates that Origin is well-positioned to benefit from what observers forecast will be a tripling of natural gas demand in eastern Australia.
Origen is yielding 4.3 percent. It has never cut its dividend and actually stepped up its rate substantially during the Great Financial Crisis.
Origen Energy is a buy on the Australian Securities Exchange using the symbol ORG and on the US over-the-counter market under the symbol OGFGF up to $15.
Origen also trades on the US OTC market as an American Depositary Receipt under the symbol OGFGY. The ADR is worth one ordinary, ASX-listed share. Origin Energy’s ADR is a buy under $15.
Oil Search Ltd.
Regarding Oil Search Ltd, the firm's key asset is its 29 percent stake in the high-quality Papua New Guinea Liquefied Natural Gas venture, which is operated by Exxon Mobil.
LNG from the project is fully contracted to four key buyers, including TEPCO and Osaka Gas from Japan, CPC from Taiwan and China’s Sinopec .
Oil Search stock slumped in mid-November 2012 after Exxon reported that costs for the project would be higher than previously forecast A higher Australian dollar has also had an impact, as have torrential rains that have prompted Exxon to bring in special equipment.
However, the LNG venture remains on track to deliver strong and stable long-term cash flow for Oil Search beginning in 2014.
Oil Search is a strong buy for long-term growth up to $8 using the symbol OSH on the Australian Securities Exchange (ASX) or the symbol OISHF on the US over-the-counter (OTC) market.
Oil Search also trades as an American Depositary Receipt on the US OTC market under the symbol OISHY. The ADR represents 10 shares of the Australian-listed stock. The OTC-listed ADR is a buy under $80.
Learn more about this financial newsletter at David Dittman's Australian Edge.