AGL Energy Limited 

AGL Details

Proposal to Establish Two Energy Businesses: AGL Energy Ltd (ASX: AGL) is engaged in supplying electricity and natural gas and energy to residential, small, and large businesses, and wholesale customers in Australia. Recently, the company informed the market regarding its intention to demerge its energy businesses into two separate entity namely “New AGL” and “PrimeCo”. New AGL will be engaged in energy retailing business whereas PrimeCo will be engaged in generating electricity and contributing towards the economic growth. 

We believe, the purpose of the demerger is to ensure focussed approach on each business separately and execute strategy accordingly for the future growth for both the entities. So far, Wholesale markets (Likely allocation to PrimeCo) has higher contribution of the total underlying EBIT whereas customers market (Likely allocation to New AGL) has a low percentage share of the total underlying EBIT. AGL will be deciding about the demerger by the end of June 2021 taking due consideration from shareholders and other stakeholders. New AGL will be looking into mobile & internet segment and supplying electricity retailer to the consumers. 

Crib Point Project Update:  As per the company report, AGL’s proposed LNG import jetty at Crib point is determined to be unacceptable by the Victorian Planning Minister, due to its effects on environment. The company has incurred approximately $130mn on the project so far against the committed expenditure of $102mn. 

Supply Agreement with Portland Smelter: On 19 March 2021, AGL has finalised a new agreement with Portland Smelter to supply them with their electricity requirement w.e.f. 1 August 2021, after the completion of their existing contract. The company will be supplying 275 MW as per the new contract on commercial terms, which will also provide AGL with flexibility to reduce short-term volume at times of peak demand. 

AGL to Acquire Tilt Renewables Via its interest in PowAR: On 15 March 2021, the company announced that it will contribute A$341mn to acquire Tilt’s Australian business through it is 20% interest in PowAR. Notably, PowAR and Mercury NZ entered a scheme of arrangement where, they will acquire Tilt Renewable Ltd for a cash consideration of NZ$2.9bn.

Dividend Declaration: As per the company report, AGL has declared a dividend of AUD 0.4100 per share. The ex-date for dividend distribution was on 24 February 2021 and the payment date was on 26 March 2021.

Outlook: AGL expects its underlying profits to be in a range of $500mn - $580mn in FY21, after considering higher depreciation expenses, worsening of wholesale electricity and renewable energy certificate prices, Covid-19 related costs. The company is expecting its operating costs to be flat in FY21. The company plans to reduce $100mn for sustaining capex. 

Stock Details: In the last one month, AGL has increased by ~2.22% and decreased by ~19.24% in the last three months. The current market capitalisation of AGL stands at ~$6.11bn as on 31 March 2021. The stock is currently trading below the average of its 52-weeks’ price level range of $9.350-$18.210. On the technical analysis front, the stock has a support level of ~$9.40 and a resistance of ~$9.89. Considering the recent updates, current uncertain environment led by COVID-19 and key investments risks, we suggest investors to keep an eye on the business activities and wait for more details related to the proposed demerger from the management’s front. The current market price of the stock stands at $9.65, down by ~1.63% as on 31 March 2021.

AGL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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