Investors see gold in Origin’s $15b tech play, sending shares soaring
Australian Financial Review
7 July 2025
Origin Energy could receive a windfall far greater than the market had expected if the British electricity retailing business it has invested in spins out a highly lucrative technology play for $US10 billion ($15.4 billion).
That’s the view of analysts and investors, who said they were surprised by the high valuation for Octopus Energy’s Kraken arm first floated by the Financial Times at the weekend. Origin shares jumped almost 7 per cent on Monday, the first day of trade after that report was published.
The valuation floated by the Financial Times would mean Origin’s 23 per cent stake in the business was worth $3.5 billion, much higher than analysts estimates for the whole of Octopus and the value inferred by investors.
Octopus, which is Britain’s largest energy retailer, has been gradually separating out Kraken, including its operating systems and management, after rapid growth over the past several years.
Sky News had earlier reported that investment banks had been invited to pitch to advise on a demerger and suggested a 20 per cent stake could be sold to new investors, with the majority held by existing shareholders.
Origin first bought a stake in Octopus in 2020 and invested repeatedly to maintain it as other investors, such as Tokyo Gas and Generation Investment Management, came on board. It raised its stake in December 2023, just after the $20 billion takeover proposed by Brookfield and EIG collapsed when Origin shareholders rejected it.
Octopus has been on a sharp growth trajectory over the past few years, both in electricity and gas retailing, and in Kraken, whose cloud-based software platform is used by water utilities, broadband providers and energy companies. Octopus has about 24 per cent share of the UK energy retailing market and another 2.5 million customers overseas. The number of customer accounts at Kraken has rocketed, reaching about 74 million by April 30, putting it ahead of schedule of its 2027 target of 100 million.
Analysts divided
Origin chief executive Frank Calabria said in February that 100 million accounts would translate to more than £500 million in annual revenue.
In May last year, when Aware Super bought into Octopus, the whole company’s value was put at $US9 billion. But the valuations cited in the Financial Times suggest Kraken alone could be worth that much or more.
Jamie Hannah, deputy head of investments and capital markets at VanEck Australia, said he was “shocked” at the numbers being cited.
UBS analyst Tom Allen said his team valued Origin’s 22.7 per cent stake in Octopus as a whole at $4 billion, signalling $16.7 billion for the entire company. Allen said that although UBS did not split that valuation across Octopus and its technology subsidiary, Kraken would be valued at between £3.4 billion and £5.75 billion, depending on its sales in 2027.
“So a lot more conservative than the newspaper overnight was suggesting,” Allen said, noting that UBS’ scenario makes a conservative assumption of Kraken growth, assuming it reaches its target 12 months late, in 2028.
But prominent stockbroker Angus Aitken, a well-known bull on the value of Origin, told clients that ending up with 100 million Kraken customers globally would be “an abject failure” and suggested the eventual number could reach “300 million to 500 million or more”.
He said analysts who covered Origin were “asleep to the value” of the company during the $20 billion takeover proposal.
Macquarie said on Monday that it valued Kraken at £4.7 billion, and Octopus at £9.1 billion. The likely reason for the gap was Kraken’s progress in acquiring additional customers, Macquarie analyst Ian Myles said in a note.
He said a demerger through a share issue followed by a sell-down of Kraken would introduce a range of strategic alternatives for Origin. That would include a distribution of Kraken shares to Australian investors, although this would require a secondary listing in Australia.
Kingfisher Capital Partners’ Ross Illingworth, who invests on behalf of wealthy families, said the numbers being talked about for Kraken’s valuation showed it was the right decision to reject Brookfield’s $9.43 per share bid.
Origin shares closed at $11.55, up 73¢ or 6.9 per cent, on Monday.
“I’m glad we didn’t accept the earlier proposal,” Illingworth said.
He added the value of Kraken was “disguised in the group” and that a spin-off would enhance value for shareholders. “Everyone knows it’s there – it’s the jewel in the rough – but it needs to come out,” Illingworth said.