Origin undervalued: King

ORIGIN Energy has hinted it might hold out for a bigger bid from BG after managing director Grant King said the UK company had to address Origin's true resource position.
Origin undervalued: King Origin undervalued: King Origin undervalued: King Origin undervalued: King Origin undervalued: King

King said Origin's resource position was at the core of BG's $12.9 billion offer and that it was time to think of Origin in the context of its resource position and how to value this.

"We would not want to underestimate the value of the resources we control," King told investors at a Macquarie Group conference yesterday.

King said while BG's offer valued the company at about 27 times Origin's earnings, compared to the historic trading range of 16-22 times its earnings "the multiples are not at all challenging in the context of companies in similar positions in terms of the development of their resources whether they be gas or minerals".

He added that with Origin's record of doubling its market capitalisation every 3-4 years, the 40% premium in BG's offer price was "only a few years work".

King was also optimistic about Origin's coal seam methane reserves, saying the 2500 petajoules of reserves that Origin had did not reflect the "true resource position'' and that it was reasonable to suggest the recoverable resource base could be four times higher.

He also forecast a significant rise in prices, due to continuing demand from Asia and upside pressure from the Federal Government's proposed carbon emissions scheme.

"In a world that is valuing gas more highly, we would be seeking to add gas reserves on an economic basis," he said.

"There is a very, very substantial resource base there."

Several analysts have already suggested BG might have to lift its offer for Origin as its offer undervalues the Australian company's CSM assets in Queensland.

While the $14.70 per share takeover bid was initially seen as being too good to refuse, analysts have set target prices ranging from $15-16.70 per share.

BG's offer is widely seen as a move to secure Origin's CSM to either guarantee it has enough gas for the first train at its $8 billion liquefied natural gas joint venture in Gladstone, Queensland in partnership with Queensland Gas Company, or to feed a second train at the project.

BG reportedly has no plans to spin off Origin's power retail arm.

"BG provided assurances they're supportive of Origin's plans for investment in the NSW power sector, and said they don't see their proposal having an impact on Origin's plans for the NSW power industry," Reuters quoted Heather Gilmore, a spokeswoman for New South Wales state Treasurer Michael Costa, as saying in an email.

She added BG plans to grow Origin's energy retail business and compete in the sector.