AGL Energy Limited

AGL Details

AGL Energy Limited (ASX: AGL) operates Australia’s largest electricity generation portfolio.

FY21 Performance (For the Period Ended 30 June 2021)

• The company’s revenue reduced to $10,942 million from $12,160 million in FY20. Total generation volumes during the period decreased by 6% to 41,137 GWh owing to the impact of planned and unplanned outages and reduced grid demand.
• Underlying EBITDA declined by 18% to $1,666 million in The company has posted a statutory loss after tax of $2,058 million that includes $2,929 million of impairment losses, onerous contracts, and costs related to acquisitions, restructuring, and cessation of the Crib Point project.
• The company has declared a final dividend of 34 cents per share taking the total dividend for FY21 to 75 cents, including 10 cents interim special dividend.

Consolidated Income Statement (Source: Company Reports)

Recent Update

• As per the press release dated 23 September 2021, the company’s proposed grid-scale battery in Broken Hill has made further progress. Notably, NSW Department of Planning, Industry and Environment (or DPIE) granted the approval for up to 50 megawatts (MW), 100 megawatt-hour (MWh) project.

Key Risks

The company is exposed to broader risks such as wholesale market pricing and volatility, regulatory intervention, market disruption, etc.

Outlook

The company has guided achieving underlying EBITDA in the range of $1,200 million and $1,400 million in FY22. Further, it estimates its FY22 NPAT to stay in the range of $220 million and $340 million. Additionally, AGL is on track to deliver at least $150 million in operating cost reduction for FY22. It is also targeting a $100 million reduction in sustaining capital expenditure by FY23.

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

Technical Overview:

Chart:

Source: REFINITIV

Note: Orange 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 current ratio in FY 2021 on the YoY basis.

For the purpose of relative valuation, peers like Origin Energy Ltd (ORG.AX), and Delorean Corporation Ltd (DEL.AX), among others have been considered.

We give a “Speculative Buy” recommendation on the stock at the current market price of $6.00 per share (Time: 4:08 PM (GMT +10), Sydney, Australia) on 18^th October 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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