AGL Energy Limited (ASX: AGL)
AGL Energy Limited operates as an energy utility service provider. It provides electricity generation using coal, gas-fired plants and renewable energy sources, batteries, and other energy storage assets. It also provides telecommunication services. AGL holds a market capitalization of $4.79 billion as of March 9, 2022.
Recent Business Updates: As announced on March 7, 2022, the board of AGL has rejected the non-binding takeover proposal from Brookfield Asset Management for $8.25 per share. The board considers the revised offer is still below the fair value of the company. The revised offer represents a 15.2% premium to the closing price of AGL of $7.16 on February 18, 2022. On March 2, 2022, AGL informed that Macquarie Group Limited has picked up 33.85 million shares in AGL, representing 5.14% voting rights. On February 25, 2022, AGL appointed Vanessa (Fernandes) Sullivan as a Non-Executive Director, effective March 1, 2022.
Latest H1FY22 Result: AGL posted flat electricity generation volume growth at 20,619 Gwh in H1FY22 and a flat change in customer growth with 4.5 million customers. Improvement in wholesale electricity rate was partly offset by hedging losses and the absence of insurance proceeds from the Loy Yang outage realized last year. Its underlying EBITDA dived 21% to $723 million and underlying PAT dropped 41% to $194 million. It had declared an interim unfranked dividend of 16 cps. AGL is on track to deliver $150 million cost savings in FY22 and a $100 million reductions in capex.
Healthy Balance Sheet and Guidance: It had total liquidity of $700 million which includes cash and unused debt facilities. For FY22, AGL slightly upgraded its FY22 guidance with underlying EBITDA to be in the range of $1,275-$1,400 million as compared to the previous view of $1,200-1,400 million. Underlying NPAT is expected to be $260-340 million in contrast to the previous view of $220-340 million.
Technical Analysis: On the weekly chart, AGL stock price broke the falling trendline resistance and sustaining above the downward sloping trendline. Moreover, the prices are trading above the trend-following indicators 50-period SMA, which may act as a support zone. Further, the momentum oscillator RSI (14-period) is trading at ~55.09 level, indicating positive momentum. An important support level for the stock is placed at AUD 6.50 while the key resistance level is placed at AUD 8.20.
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of AGL delivered returns of ~+31.36% in the past three months. The stock is trading below to its average of the 52-weeks’ low-high price band of $5.10-$10.67 The stock has been valued using the P/E-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers, considering the revised offer from Brookfield Asset Management and upgraded guidance. For this purpose of valuation, a few peers like Origin Energy Ltd. (ASX: ORG), APA Group (ASX: APA), New Energy Solar Ltd (ASX: NEW), and others have been considered. Considering the ongoing cost-saving initiatives, improvement in wholesale electricity prices, adequate liquidity, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $7.300 as of 9 March 2022, 01:18 PM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
AGL Weekly Technical Chart, Data Source: REFINITIV
Thorn Group Limited (ASX: TGA)
TGA operates as a diversified financial services company catering to small and medium businesses. It operates in Business Finance and Consumer Finance divisions. TGA holds a market capitalization of $83.27 million as of March 9, 2022.
Recent Business Updates: On February 15, 2022, TGA announced an on-market buyback of up to 5% of ordinary shares (of 16.99 million shares). The program commenced on March 1, 2022, and will be open until the next 12 months period. As per the recent quarterly activities report, TGA has launched the Asset Financing business in December 2021 to cater to SMEs. It had launched its new website and broker portal as part of its commitment to new technology solutions. On December 20, 2021, TGA sold Radio Rentals Consumer Finance division for cash consideration of $44 million. TGA posted a net profit of $13.3 million in H1FY22 as compared to a net loss of $1.1 million in the prior year. It had divested its investment in start-up BNPL provider, QuickaPay in December 2021.
Technical Analysis: On the daily chart, TGA prices are trading below the horizontal trend line resistance zone and facing the resistance of the same. Moreover, the prices are trading below the trend-following indicator 21-period SMA, which may act as a resistance level. Further, the momentum oscillator RSI (14-period) trading at ~51.96 level, indicating a lack of momentum in the stock. An important support level for the stock, is placed at AUD 0.225 while the key resistance level is placed at AUD 0.275.
After considering the divestment of its Radio Rentals business and foray into Asset Financing business, and the company’s current technical levels, investing in this stock at current levels must be considered with a careful approach, hence it's suggested to ‘Watch’ and re-evaluate the stock once the prices approach the support & resistance levels. The stock was analyzed as per the closing price of AUD 0.250 per share, up by ~2.040%, as of 9 March 2022.
TGL Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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