Origin Energy (ASX:ORG) Surges Despite 45% Profit Drop- Is the Market Right to Be Bullish?

Origin Energy Surges on Upgraded Guidance

Origin Energy (ASX: ORG) climbed as much as 8.1 per cent on Thursday after releasing its half-year 2026 results before closing at A$11.56. At first glance, a 45 per cent fall in statutory profit to A$557 million looks worrying. But investors are focusing on the bigger picture rather than the headline number.

The company’s main Energy Markets division is performing better, full-year guidance has been upgraded, and cash flow has improved significantly. The drop in profit was mainly caused by lower LNG prices, not because the core business is weakening. In our view, the profit decline is not the key issue. The underlying performance of the business is what really matters, and that is moving in the right direction.

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Origin’s Energy Markets Division Powers Ahead While Gas Earnings Soften

The most important figure in the result is Energy Markets’ underlying EBITDA of A$860 million, up 17 per cent from the same period last year. This division, which produces, trades, and sells electricity and gas to Australian homes, is quickly becoming Origin’s main source of growth and earnings momentum.

Electricity gross profit increased by A$102 million to A$840 million, helped by higher wholesale costs being passed through into retail prices, along with lower costs linked to green energy schemes. Origin added 96,000 new customer accounts while maintaining a churn rate of 14.7 per cent, well below the industry average of 22.4 per cent. This level of customer retention indicates genuine service strength, not just heavy discounting to win users.

The company also completed Stage 1 of its Eraring battery on time and within budget. This forms part of a much larger 1.7 GW and 6.3 GWh battery storage rollout expected to contribute meaningfully from FY27. In our view, the market is responding to Origin’s shift away from a gas-led story towards a retail and battery storage growth story. Meanwhile, Integrated Gas EBITDA of A$860 million was lower due to weaker LNG prices, which were largely expected.

Kraken Separation and Cash Flow Tell the Bigger Story

Adjusted free cash flow rose from A$187 million to A$705 million during the half, giving solid support to Origin’s dividend. The interim dividend was kept at 30 cents per share, fully franked, showing management’s confidence in the company’s cash generation.

Management upgraded full-year Energy Markets EBITDA guidance to A$1,550 to A$1,750 million, up from the previous range of A$1,400 to A$1,700 million. The bottom end moved up A$150 million, which suggests management sees stronger and more stable earnings ahead, not just a short-term boost.

Origin Energy holds a 22.7 per cent economic interest in both Octopus Energy and Kraken Technologies, with Kraken’s separation targeted for mid-2026. A recent equity raise valued Kraken at US$8.65 billion, and we believe this stake represents hidden value not yet fully reflected in Origin’s share price. That said, Octopus posted an EBITDA loss of A$89 million for the half as it continues to invest heavily in scaling internationally, so short-term profits remain under pressure.

The Investor’s Takeaway for Origin Energy

Origin Energy currently trades around the A$11 mark, with analyst consensus targets ranging from approximately A$12.00 to A$12.45, suggesting roughly 7 to 10 per cent upside. The 52-week high of A$13.13 is not far away, which may cap near-term gains.

The bull case is clear: Energy Markets momentum, battery storage adding a new earnings layer from FY27, potential Kraken value unlock, and a solid 5.3 per cent fully franked yield. For investors wanting energy transition exposure with a defensive income floor, Origin Energy ticks several boxes.

The bear case deserves attention too. LNG prices remain soft, Octopus is still loss-making, and with the stock already having run up on these results, some good news may already be priced in.

At current levels, we believe Origin Energy is reasonably priced for income-focused investors who value reliable dividends, improving cash flow, and energy transition exposure. Growth investors chasing outsized returns may find better opportunities in pure-play renewable or battery small caps.