Applied Finance: Analysis of Origin Energy

Running Head: APPLIED FINANCE 0
Applied Finance
(Student Name)

APPLIED FINANCE 1
Executive Summary
There is great increase in the demand for renewable energy as well as with an increased global
population, the demand is expected to double or triple over the next five decades that represent a
big business opportunity for the companies that produce energy. One of the Australian based
companies Origin energy has string presence within the country as well as in other countries. The
company deals with natural gas production, renewable energy that supplies electricity to the huge
number of population within and outside the country. The company founded in the year 2000.
The given report will describe about the management as well as directors or the company, the
corporate governance and risk analysis of the company that presents that there is average
performance of the company that support them to survive in the competitive market in an
effective manner.

APPLIED FINANCE 2
Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................3
Scope of Report............................................................................................................................3
Background of Company.............................................................................................................3
Corporate Governance.....................................................................................................................3
Chief Executive Officer...............................................................................................................3
Board of Directors........................................................................................................................4
Ownership Structure....................................................................................................................6
Lenders.........................................................................................................................................6
Financial Market Consideration...................................................................................................7
Social Constraints........................................................................................................................8
Historical risk parameters:...............................................................................................................8
Default risk and cost of debt:.......................................................................................................9
Estimating cost of capital:..........................................................................................................10
Analyzing the Existing Investment................................................................................................10
Assessing the Competitive Strength..........................................................................................11
Financing Sources..........................................................................................................................12
Current financing.......................................................................................................................12
Trade-off on Debt versus Equity................................................................................................12

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Costs and Benefits of debt......................................................................................................13
Dividend policy.............................................................................................................................13
Dividend policy analysis............................................................................................................13
Custodians of cash.....................................................................................................................15
Peer group analysis....................................................................................................................16
FCFE approach:.............................................................................................................................17
DDM approach:..........................................................................................................................17
PE approach:..............................................................................................................................18
Conclusion.....................................................................................................................................18
Bibliography..................................................................................................................................19

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Introduction
Scope of Report
In the following report there will be detailed analysis of energy retailing company Origin
Energy, their growth of business in the international market, with the purpose of determining
how effectively the company is managing as well as whether it is one of the viable investment
opportunity or not. The level of risk will also analyze in this report to represent actual growth of
the company in such international market. Aiding the analysis are the five most recent years
financial as well as company data that will support in analyzing the productivity of the company
are explained in blow points:
 Risk and Return profile
 Corporate Governance
 Cash Flow and Earning
 Financing Sources
 Policies related to Dividend
Background of Company
Origin Energy is one of the leading Australian integrated energy company that deliver electricity
to 4.2 million consumers as well as developing with producing natural gas- a cleaner form of
energy for the consumers in Australia as well as other areas also. The companies also aspire to be
the number of Renewables Company in Australia, by empowering the consumers to reduce their
carbon footprints through wind, solar as well as storage technology 1.
Corporate Governance
Chief Executive Officer
Frank Calabria was appointed as Chief Executive Officer as well as Managing Director of the
Company in October 2016. Frank is a member of the Company Health, Safety and Environment
1 Janusz Brzeszczyński, Socially responsible investment and market performance: the case of
energy and resource firms. (Pearson, 2016)

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Committee. He was firstly origin as Chief Financial Officer in the year 2001 as well as was
appointed as Chief Executive Office Energy Markets in the year 2009. Therefore, it represent
that Frank was already the part f the company he was promoted within the company to grow the
company in the competitive market in an effective manner.
Frank manage the role of CEO as well as Managing Director in the company since the year 2016
as he is majorly responsible for the integrated business within the Australia including retailing as
well as trading of natural gas, electricity as well as LPG power generation with the soar and
energy services. Such criterion gives the board qualitative as well as qualitative guidelines to
access performance related to EBIT growth, compound annual growth of EPS as well as
numerous non-financial measures.
Mr. Frank received A$ 3,389,341 in compensation for the year 2017 in the form of:
 Salary of $ A$1,646,466
 Performance Bonus of A$1,742,875
 Stock Option of A$ 1,430,210
 And other compensation of A$3,489,051
It represent that almost 40% of his total compensation is in the form of performance bonuses
where an independent remuneration committee has also recommended the objective criteria
benchmarks in the form of short as well as long-term incentives. In the recent, Mr. Frank owns
163,530 shares in the company that make them contributor in the growth and success of the
business in an effective manner2.
Board of Directors
The table of board of directors is explained in below table:
2 Alden, S, Ottaway, A, and Tetstall, J, Australia: Drafting contracts: guidance on managing
ambiguity (2012)
http://www.mondaq.com/australia/x/163072/Contracts+Deeds/Drafting+contracts+guidance+o
n+managing+ambiguity