AGL Energy Limited

AGL Details

AGL Energy Limited (ASX: AGL) operates Australia's largest retail energy as well as dual fuel customer base and consist of the substantial portfolio of wholesale energy contracts as well as assets in order to support the retail customer base.

Result Performance (FY21 Ended 30 June 2021)

• Underlying EBITDA for the period stood at $1,666 million, a decline of 18% on previous year.
• Statutory Loss after tax for the company stood at $(2,058) million, including $(2,929) million of impairment losses, onerous contracts and costs associated with acquisitions, restructuring and cessation of the Crib Point project.
• The Board of Directors declared final dividend of 34 cents per share resulting in Total FY21 dividend of 75 cents, including 10 cent interim special dividend.

Source: Company Reports, Analysis by Kalkine Group

Outlook:

The company is focused on reducing its operating costs by $150 million by the end of FY22 and reducing its sustaining capital expenditure by $100 million by FY23. For FY22, the company expects its NPAT to be between $220 million and $340 million.

Key Risks:

• Volatility in Electricity Prices: The company is exposed to the risks related to the fluctuations in the price of wholesale electricity as it could impact its financials.
• Other risks of the company include liquidity risk, credit risk, etc.

Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation:

The stock has been valued using an EV/EBITDA multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight discount has been applied to EV/EBITDA multiple (NTM) (Peer Average) considering lower gross margin in FY 2021 on the YoY basis. However, the company is possessing decent outlook.

Thus, we give a “Speculative Buy” rating on the stock at the closing price of $5.26 per share, down by 2.231% as on 26^th November 2021. 

Meridian Energy Limited

MEZ Details

Meridian Energy Limited (ASX: MEZ) is engaged in the business of generating 100% renewable energy from renewable sources - wind, water, and sun.

FY21 Results Performance (For the Year Ended 30 June 2021)

• MEZ has delivered an EBITDAF of $729 million in FY21, down by $124 million or 15% over FY20. However, the company’s net profit after tax rose to $428 million in FY21 owing to the advantage of $248 million of positive non-cash movements in the value of hedge instruments.
• MEZ has sustained the robust retail sales growth in FY21 and New Zealand volumes grew by 14% over the prior year.
• The board has approved a final ordinary dividend of 11.20 cents per share that stayed in line with the previous year. This takes the overall ordinary dividends for FY21 to 16.90 cents per share compared to the same level in FY20.

Source: Company Reports, Analysis by Kalkine Group

Recent Update

• As the press release dated, 22 November 2021, the company has agreed the sale of Meridian’s Australian business to a consortium of Shell Energy Operations Pty Ltd, a wholly owned subsidiary of Shell and Infrastructure Capital Group for a consideration of A$729 million.

Operating Performance for The Month of October 2021

National hydro storage reduced from 134% to 119% of the historical average in the month to 11 November 2021. The company’s monthly total inflows stood at 83% of the historical average. Its Waitaki catchment water storage at the end of October 2021 stood at 149% of the historical average, while the water storage in Meridian’s Waiau catchment remained below average at the end of October 2021.

Key Risks

The company is exposed to risks related to adverse hydrological conditions such as dry periods or drought conditions in the Waitaki or the Waiau catchments may result in lower water levels and would substantially hurt its generation capability. Further, it is susceptible to catastrophic events like a major earthquake, landslide, fire, flood, cyclone, explosion or act of terrorism that could adversely affect its power stations or the national high voltage transmission grid.

Outlook

The company highlighted that the underlying drivers of future business value stayed robust, specifically the growth in customer sales and the commitment developing the Harapaki wind farm. The company expects the group’s operating costs in FY22 to remain in the range of $275 million and $280 million that includes $6 million of SaaS cost reclassification. It also forecasts the group capex to stay between $205 million and $215 million for FY22.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

The stock has been valued using an EV/EBITDA multiple-based illustrative relative valuation and the target price so arrived reflects a rise of low-double-digit (in % terms). A slight discount has been applied to EV/EBITDA Multiple (NTM) (Peer Average) considering lower current ratio in FY 2021 on the YoY basis. However, it has posted higher net margin in FY 2021 on the YoY basis.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the current market price of $4.30 per share, down by 1.602% on 26^th November 2021.

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 on 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 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 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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