3 catalysts, dividend upside, no macro required. The ASX energy stock this fundie is buying

Five ASX 200 companies downgraded in a single week. 

Consumer and business confidence at levels not seen in years. 

Financial conditions already the tightest in over a decade - and that's before higher fuel costs have fully worked their way through household budgets.

Yet markets have shown a surprising resilience in the face of all of it, and for Edward Waller, Deputy Portfolio Manager of the Yarra Ex-20 Australian Equities Fund, that’s when stock selection matters.

When the news flow is at its most overwhelming, backing companies with multiple independent reasons to perform – regardless of how the macro plays out – is what separates good stock picking from good luck.

That mindset is precisely what drew him to his most recent investment: an energy sector stock he believes is structurally well positioned for the transition ahead, with three distinct catalysts that don't require the macro to cooperate.

In this week’s Q&A, Waller walks us through his thinking on the energy transition, why he's watching one of Australia's most recognisable job platforms from the sidelines, and what the current market volatility is really telling investors.

What’s your most recent investment and why?

We have recently added to our position in Origin Energy (ASX: ORG). 

Clearly, the spike in energy prices is a tailwind for its APLNG holding, however we feel there are clear catalysts across each of its three major assets, which are structurally well positioned for the ongoing energy transition and which should see the stock perform regardless of when the Strait of Hormuz reopens.

APLNG has rapidly deleveraged over recent years and will have zero debt by 2030. This is for an asset generating $5b plus of EBITDA (Origin owns 27.5% of APLNG), has contractual life out to 2035 and a resource life that will take it well into the 2040s. The current debt amortisation profile is clearly too aggressive and resculpting will very likely free up cash flow to boost the Origin dividend.

Origin’s Energy Markets business has been investing heavily in grid scale batteries. These are about to come online at strong returns and should see the business generate strong electricity margins for the next few years without the major asset retirement risk some peers face.

Finally, we are looking forward to learning more about Origin’s high-growth utility software investment, Kraken, at the latter’s investor day in late April as this business heads towards an eventual value crystallisation event. 

Which investment did you add to your watchlist this week?

We have added Seek (ASX: SEK) to our watchlist. Stripping out its stake in the Seek Growth Fund, the stock is trading on 15x forward earnings.

There is likely to be some deterioration in the Australian jobs market given the shock to confidence from the dual blows of higher diesel and petrol prices and RBA rate increases. This means earnings estimates will likely need to come down.

But this is in the context of a stock that has already halved on AI disintermediation concerns, which we feel is way overdone for Seek and Australia’s other major online marketplaces.

So, maybe not just yet, but it is a name we are monitoring, as looking through the short-term cyclical headwinds, there is a durable and growing business at an attractive multiple. 

What is the most recent investment you have trimmed or sold and what drove this decision?

We recently exited our position in Ansell (ASX: ANN), which had been a good investment for us. The business now faces multiple headwinds related to higher oil prices and slowing industrial growth. A weaker demand environment is not yet reflected in consensus numbers of mid-single digit sales growth in 2H26 and FY27, the pressure of which is likely to be compounded by higher oil-linked input costs.

What’s your favourite chart or data point from this week?

Australian financial conditions are already the tightest they have been in over a decade, and this is before assessing the impact of higher fuel costs on discretionary spending. Consumer and business confidence has tanked to levels suggesting a significant slowing in the economy, with a risk of recession. The view of Yarra’s highly experienced in house economist, Tim Toohey, is that tightening interest rates further in this environment would be a major policy error.

What was your weekly high – a standout market moment or highlight?

If you told me on Friday last week after a +4.5% rally in the market that peace talks had failed, the US would be blockading the Strait of Hormuz, multiple companies would downgrade by Tuesday, including Westpac and Qantas, and roughly half of Australia's refining capacity would catch on fire then I would have said that we were in for a rough week. 

So, the resilience of markets in the face of all of that has been a key positive. 

What was your weekly low – a market disappointment or challenge?

By Tuesday this week, we had seen five downgrades from ASX 200 companies.

The February reporting season was actually quite strong; the proportion of upgrades was high, and outlook statements were generally upbeat. An enormous amount has shifted over the past six weeks, as shown in the chart above. Unfortunately, we expect a wave of further downgrades is likely to follow over the next 3-4 weeks. 

What first drew you to markets and what continues to keep you inspired today?

The companies and industries we invest in are constantly evolving and markets are highly dynamic, so there are always tonnes of new things to learn and different market contexts to invest against.

Over time I think you get better at tuning out some of the noise, but it is always the search for that next high conviction investment that drives me.

What’s one piece of advice you’d give to new investors?

If you don’t fully understand what a company does and how it generates revenue and earnings, then you cannot expect to deliver returns from that investment.

How do you unwind when you’re not thinking about the market?

I love getting outdoors, being active and spending time with family. If I can do all three at once, then that is a great day. 

Rapid fire! 🔥

Favourite investing book?

The Warren Buffett Way by Robert Hagstrom

Favourite investing or finance/markets-related podcast?

While I tend to bounce around on finance podcasts depending on the topic, I do generally listen to the NAB Morning Call podcast each morning for a quick macro rundown. 

The first thing you read each morning?

The AFR StreetTalk column – if something big is about to happen, that is the most likely place to find it.

Favourite restaurant?

Samesyn in Torquay – it is a zero-waste, profit-for-purpose restaurant with two chef’s hats and incredible value.

Think there’s a better pick? Prove it. Share your rapid-fire book, podcast, and daily read in the comments.

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Yarra Ex-20 Australian Equities Fund

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