JPMorgan has increased its valuation of UK energy company Octopus Energy by 7 per cent to £16.8 billion ($33.8 billion). This adjustment has led the broker to raise its 12-month target price for shares of Origin Energy, which owns a portion of Octopus. Origin Energy is an Australian integrated energy company focused on power generation and energy retailing. They explore, produce, generate, and sell energy, working to provide sustainable options for customers.
The broker’s December target price for Origin’s shares has been increased to $12.70, up from the previous $12.40. However, Origin shares experienced a downturn in mid-morning trading, falling by 3.6 per cent to $11.36. Origin Energy holds a 23 per cent stake in Octopus, which recently announced its plans to separate its technology division, Kraken.
According to energy analyst Nick Morgan, the revised valuation of Octopus is primarily attributed to an 18 per cent increase in the assessment of its retail business, now valued at £7 billion. This reflects heightened confidence in the international business’s potential for customer growth and Octopus’ capacity to enhance margins. Morgan also noted that JPMorgan’s valuation of Octopus remains highly sensitive to gross earnings margins.
Despite the increased target price, JPMorgan maintained a ‘neutral’ rating on Origin stock. This decision is influenced by limited valuation upside and potential risks associated with weaker oil prices impacting Origin’s gas business, Australia Pacific LNG, in the medium term.
