AGL Energy Limited

AGL Details

AGL Energy Limited (ASX: AGL) operates Australia’s largest private electricity generation portfolio within the National Electricity Market.

FY21 Performance (For the Period Ended 30 June 2021)

• Overall revenue from continuing operations 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 overall dividend for FY21 to 75 cents, including 10 cents interim special dividend.

Source: Company Reports, Analysis by Kalkine Group

Recent Updates

• The company, on 17 December 2021, announced the appointment of Graham Cockroft as a Non-Executive Director, effective 1 January 2022.
• In a new partnership, AGL will install solar energy systems across more than 850 Salvation Army sites. This will be done to assist the Salvos lower operational costs and become a more sustainable organisation.
• AGL, on 25 November 2021, stated that it has bagged approval from the Victorian Department of Environment, Water, Land and Planning for the set-up of the proposed 200MW, four-hour grid-scale battery at Loy Yang power station.

Key Risks

The company is exposed to broader risks such as changes in wholesale price and market volatility, regulatory and government intervention, climate change, among others.

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. The management expects operating headwinds to continue into FY22.

Besides, AGL is going as per the plan 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

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 fall of low double-digit (in % terms). A slight discount has been applied to EV/EBITDA multiple (NTM) (Peer Average) considering the risks associated with the business. Also, AGL is expecting operational headwinds to continue into FY 2022.

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

Thus, we advise the market players to liquidate the stock. We give a “Sell” recommendation on the stock at the close price of $7.10 per share on 24th January 2022.

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

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