AGL Energy Limited

AGL Details

Demerging into Two Energy Businesses: AGL Energy Limited (ASX: AGL) operates Australia’s largest private electricity generation portfolio and has an operating generation capacity of 11,208 MW. It supplies 4.2 million energy and telecommunications services to its customers across Australia. The company has a market capitalisation of ~$5.10 billion as on July 1, 2021. The company recently announced that it is demerging itself into two leading energy businesses with separate listings on ASX. AGL Energy Limited will become Accel Energy Limited, a baseload power producer focused on redevelopment of its sites as low-carbon industrial energy hubs. Accel Energy will demerge AGL Australia Limited. AGL Australia Limited is a leading multi-product energy retailer backed by flexible energy trading, storage and supply. AGL Energy is expected to terminate Special Dividend Program for remainder of FY21 and FY22 and underwrite the Dividend Reinvestment Plan on ordinary dividends until demerger. It is expected that the demerger will be completed by the fourth quarter of FY22, subject to relevant approvals.

H1FY21 Result Highlights: The company’s overall revenue for the interim period stood at $5,414 million, down from $6,312 million in the previous corresponding period (pcp), led by a 4.5% YoY decline in generation volumes during the period to 20,816 GWh owing to reduced market demand and the impact of unplanned outages. Underlying EBITDA for the period stood at $926 million, a decline of 13% on H1FY20, due to increased operating costs and increased D&A. Its statutory loss after tax stood at $2,287 million, while underlying profit after tax for the period declined by 27% to $317 million as a result of lower electricity generation volumes, lower wholesale electricity and LPG prices, lower consumption volumes, and increased operating costs. The board of directors has declared an interim ordinary dividend of 31 cents per share along with a special dividend of 10 cents per share.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is witnessing headwinds in the form of a sharp decline in wholesale electricity and renewable energy certificate prices along with higher costs towards managing COVID-19, lower-cost gas supply contracts rolling off, among others. Additionally, it is exposed to broader risks such as regulatory and government intervention, climate change, failure to generate and sustain a resilient gas supply, among others.

Outlook: The company has sustained the guidance for an underlying profit after tax of between $500 million and $580 million for FY21. AGL also expects underlying EBITDA for FY21 to stay in the range of $1,585 million and $1,845 million.

Stock Information: The company’s gross margin and EBITDA margin for H1FY21 stood at 30.3% and 17.1%, better than the H1FY20 margins of 29.0% and 16.8%, respectively. However, its net margin for H1FY21 stood at -42.2%, as compared to 5.1% in the previous corresponding period. Its ROE for H1FY21 stood at -33.7%. The company’s forecast of a material impact on its earnings for FY22, hinders its outlook. Moreover, termination of Special Dividend Program for remainder of FY21 and FY22, adds salt to the wound. This development has led to drastic decline in the AGL’s share in the past two days which suggest weakness in the coming period as well. AGL’s share closed at $8.100 per share, down by 1.22% as on July 1, 2021. 

AGL Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above. 

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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