Expectations are low for Australia’s biggest integrated energy company.

AE Portfolio Aggressive Holding Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY) recently revised downward its earnings guidance for fiscal 2013, this after the stock has already suffered a slow decline from AUD13.34 per share on the Australian Securities Exchange (ASX) to start 2012 to AUD11.19 on Nov. 7, 2012, the day before it cut its forecast.

The stock slumped to as low as AUD9.84 by Nov. 16. The stock’s 12-month closing high of AUD14.15 was set nearly a year ago, on Jan. 27, 2012.

Origin closed at AUD11.73 on the ASX on Jan. 8, as it’s benefitted from the general bullish mood lifting equities markets around the world. But there are particular reasons to like Origin, such as the ability of its assets to generate cash flow and build wealth over the long term.

At these levels it’s yielding 4.3 percent. Impressively, Origin has no dividend cuts over the past five years, though dividend growth has been only very modest. For fiscal 2012 the company paid AUD0.50 per share, split evenly between interim and final payments, after it paid AUD0.49 per share for fiscal 2011 and AUD0.48 for fiscal 2010. The payout ratio for fiscal 2012 was 55.5 percent, well within reason for a company with Origin’s cash-generation capabilities.

Debt-to-assets is just 21 percent, and the company has no major maturities until an AUD1.8 billion revolving loan facility comes up for rollover in April 2015.

With a price-to-book value of 0.98 and a price-to-earnings multiple of 12.91 the stock represents a compelling bargain.

Origin has oil and gas exploration and production, power generation and energy retailing operations. It’s one of Australia’s largest energy retailers, with 4.4 million electricity, natural gas and liquefied petroleum gas (LPG) customers.

It also controls one of Australia’s largest and most flexible generation portfolios, with approximately 5,900 megawatts of capacity through either owned generation or contracted rights.

Through Australia Pacific LNG, a joint venture with ConocoPhillips (NYSE: COP) and China Petroleum & Chemical Corp, better known as Sinopec (Hong Kong: 386, NYSE: SNP), Origin is developing one of Australia’s largest coal seam gas (CSG) to liquefied natural gas (LNG) projects. The company controls Australia’s largest base of proved plus probable CSG reserves.

Origin recently signed a long-term deal to supply natural gas to two of China-based base metals miner MMG Ltd’s (Hong Kong: 1208) 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.

Under terms of the agreement Origin will sell MMG up to 22 petajoules (PJ) of gas over a seven-year period, commencing with supply to the Century zinc mine 2013 and continuing with the Dugald River zinc mine when it goes operational in 2015. MMG will pay close to AUD9 a gigajoule.

The price compares with current prices of between AUD3 andAUD4 a gigajoule now being paid and a price of about AUD6 a gigajoule under terms of a 10-year deal executed in November 2011 between Conservative Holding AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY) and Xstrata Plc (London: XTA, OTC: XSRAF, ADR: XSRAY) for supply to the latter’s Mount Isa mine in north Queensland beginning in 2013.

The deal with Melbourne-based and Hong Kong-listed MMG is a way for Origin to monetize its gas resources at attractive prices. The gas will be sourced from Origin’s east coast fuel portfolio.

It also demonstrates that Origin is well-positioned to benefit from what observers, including the Australian Energy Regulator, forecasts will be a tripling of natural gas demand in eastern Australia.

Origin has also signed an agreement to sell a portion of its future oil and condensate production from its Australian East Coast and New Zealand production assets for USD300 million. The company will use these proceeds to pay down existing debt. Delivery of oil and condensate will begin in 2015.

These transactions continue Origin’s strategy of finding new ways to turn its energy portfolio into cash.

Management most recently guided for flat to 5 percent growth in fiscal 2013 earnings, before interest, taxation, depreciation and amortization (EBITDA). This is a downward revision from a prior forecast of 5 percent to 10 percent growth. Origin expects a 5 percent to 10 percent decline for net profit after tax (NPAT) after previously predicting a “flat” fiscal 2013 compared to 2012.

Origin identified the costs of complying with the Australian government’s Small-Scale Renewable Energy Scheme (SRES) as the main driver of its guidance revision, noting that an increase from 8 percent to 19 percent its liabilities under the scheme will boost costs by AUD40 million.

The SRES creates a financial incentive for homeowners and businesses to install eligible small-scale installations such as solar water heaters, heat pumps, solar panel systems, small-scale wind systems or small-scale hydro systems.

As of Jan. 1, 2011, entities making wholesale purchases of electricity–including energy retailers such as Origin and AGL–have had to demonstrate their support for the small-scale technology industry by purchasing Small-Scale Technology Certificates (STC). Australia’s Clean Energy Regulator sets the Small-Scale Technology Percentage (STP), which dictates how much retailers have to purchase in the form of STCs, on an annual basis.

Electricity demand is also declining in key markets such as New South Wales, where demand is off by 6 percent for the first four months of fiscal 2013 compared to the same period of fiscal 2012. Customer churn is also a concern, for Origin and other electricity retailers, as competition heats up.

Over the long term Origin’s energy markets business gives it a solid foundation for predictable cash flow. And its stake in AP LNG will deliver a strong boost to earnings and cash flow when it’s completed; AP LNG is on track to deliver first gas in 2015.

AP LNG positions Origin to be part of the long-term Asia growth story, as it will deliver gas to still-fast-growing China and gas-hungry Japan from 2015. The project will open world markets for Origin and will deliver, in management’s words, a “step-change” in earnings and cash flow.

The project continues to make good progress on the construction and development of the two LNG trains that have been approved so far. Work to explore, extract and pipe gas is on track and 20 percent complete. Work on the LNG processing and export component of the project is 23 percent complete.

The company’s large, diverse and flexible gas portfolio in Eastern Australia and potential exploration opportunities will allow it to benefit from an expected rise in domestic gas prices when East Coast demand triples over the next five years. The recent sale of gas to another LNG project, Gladstone LNG Partners, is evidence that Origin can monetize its existing gas reserves in line with export pricing. This sale, as well as the MMG arrangement and the forward sale of oil, demonstrate the inherent value of Origin’s integrated fuel position.

Origin is also pursuing international projects are focused on monetizing new sources of low-carbon fuel, specifically gas, hydro or geothermal, by connecting them with strong energy demand in high-growth markets such as Chile, Indonesia and Papua New Guinea.

And Origin is well positioned to maintain its leadership position in the Australian energy market, with the largest customer base, the largest generation portfolio and a market-leading position in green energy.

Management has forecast long-term earnings per share growth of 10 percent to 15 percent, which should underpin solid dividend growth as well.

Origin has never cut its dividend and, though growth has been more modest the last three years, actually stepped up its rate substantially during the Great Financial Crisis.

The company paid AUD0.116603 and AUD0.12632 for interim and final dividends for fiscal 2008. It declared a special dividend of AUD0.242923 in October 2008 then paid that amount for interim and final dividends for fiscal 2009.

The company has ample liquidity, with cash and undrawn facilities totaling AUD5.2 billion, well above the estimated AUD3.6 billion that is its portion of the remaining spend on AP LNG and sufficient to cover its non-AP LNG requirements.

Origin reported a statutory net profit after tax (NPAT) of AUD980 million for fiscal 2012, up from AUD186 million in fiscal 2011. Underlying NPAT, excluding the impact of financial instruments as well as a gain on dilution of its AP LNG stake, grew by 33 percent to AUD893 million due to a full year contribution from New South Wales energy assets acquired in March 2011, lower exploration expenses and higher commodity prices.

Operating cash flow after tax was AUD1.78 billion, up 12 percent from AUD1.58 billion. Underlying earnings per share climbed 16 percent to AUD0.826.

AP LNG, Origin’s main future growth driver, is on track to make first LNG deliveries in 2015. The two-train, AUD23 billion project has now been fully sanctioned by its owners. (Origin’s stake is now 37.5 percent.)

Energy Markets generated growth of in underlying earnings before interest, taxation, depreciation and amortization (EBITDA) of 33 percent to AUD1.56 billion, largely on the contribution of the new NSW assets. Underlying EBITDA for Exploration and Production rose 23 percent to AUD329 million on lower exploration expenses and higher commodity prices, though operating costs were up.

AP LNG posted a 25 percent decline in earnings to AUD47 million, primarily because of the dilution of Origin’s ownership stake from 50 percent to 42.5 percent following the first subscription arrangement with Sinopec. Sinopec has signed on for additional LNG, drawing Origin’s stake down to a current 37.5 percent. Operating costs were also higher in order to support expanded operations and to meet increased regulatory requirements.

AP LNG’s proved plus probable reserves increased from 11,775 petajoule equivalent (PJe) as of Jun. 30, 2011, to 13,111 PJe as of Jun. 30, 2012.

The Contact Energy Ltd (New Zealand: CEN, ASX: CEN) unit, one of New Zealand’s leading energy generators and retailers, generated underlying EBITDA increased by 16 percent to AUD400 million, primarily because of reductions in gas and carbon unit costs and improved commercial and industrial margins. Origin has a 52.4 percent stake in Contact, which provides electricity, natural gas and liquefied petroleum gas (LPG) to about 560,000 across New Zealand.

Among analysts who cover the stock eight rate Origin a “buy,” three rate it a “hold” and two say it’s a “sell.” The average 12-month price target among the eight analysts who provide such a forecast is AUD14.39. The implied upside based on Origin’s Jan. 8 closing price of AUD11.73 is 22.7 percent, and that doesn’t include dividends.

Origin was one of just five Portfolio Holdings to post a negative total return in US dollar terms in 2012, with a loss including dividends of 8.28 percent. Since we added it to the Portfolio in the November 2011 issue through the stock is off 8.73 percent. But we like the long-term value proposition.

Origin trades on the ASX under the symbol ORG and on the US over-the-counter (OTC) market under the symbol OGFGF.  It also trades on the US OTC market as an American Depositary Receipt (ADR) under the symbol OGFGY. The ADR is worth one ordinary, ASX-listed share.

Origin Energy is a buy on the ASX using the symbol ORG and on the US OTC market using the symbol OGFGF under USD15. Origin’s ADR, which represents one ordinary, ASX-listed share, is also a buy under USD15.

Origin Energy’s fiscal year runs from Jul. 1 to Jun. 30. Origin reports full financial and operating results twice a year; it typically posts first-half results during the third week of February, with full fiscal year numbers out in late August. It will report results for the first six months of fiscal 2013 on Feb. 21, 2013.

Interim dividends are usually declared in February along with first-half results. Final dividends are usually declared in August along with full fiscal-year results. The most recent interim dividend of AUD0.25 per share was declared Feb. 23, 2012; it was paid Mar. 30, 2012, to shareholders of record as of Mar. 5, 2012. Shares traded “ex-dividend” on this declaration as of Feb. 28, 2012.

The final dividend of AUD0.25 in respect of fiscal 2012 second-half results was declared Aug. 23, 2012. It was paid Sept. 27, 2012, to shareholders of record on Sept. 3, 2012. It traded “ex-dividend” as of Aug. 28, 2012.