AGL Energy Limited

AGL Details

AGL Energy Limited (ASX: AGL) is the largest electricity generator , with an operational capacity of 11,208 MW. The company is into essential services and delivers 4.2 million gas, electricity, and telecommunications services to residential, small and large business, and wholesale customers across Australia.

H1FY21 Performance (For the Period Ended 31 December 2020)

• Fall in Revenue: Overall revenue decreased to $5,414 million in H1FY21 from $6,312 million in H1FY20 as the generation volumes fell by 4.5% YoY to 20,816 GWh owing to outages at a power station and reduced market demand.
• EBITDA: Underlying EBITDA fell to $926 million, down by 13% on H1FY20.
• NPAT: The company reported a statutory loss after tax of $2,287 million for the interim period which includes significant items and fair value of financial instruments. However, underlying profit after tax (after adjusting significant items and fair value movements) for the period stood at $317 million, down 26.6% on the same period last year.

Financial Snapshot (Source: Company Reports)

Recent Updates

As per the release dated 30 July 2021, the company is  scheduled to release its FY21 result ended 30 June 2021 to the Australian Securities Exchange (ASX) on Thursday 12 August 2021.

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 expects an underlying profit after tax of $500-$580 million for FY21. AGL also expects EBITDA for FY21 to stay in the range of $1,585-$1,845 million. These estimates reflect on deterioration in wholesale electricity and renewable energy certificate prices, lower cost gas supply contracts rolling off, higher depreciation costs, and costs pertaining to managing pandemic risks. 

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

Technical Overview:

Chart:

Source: REFINITIV

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

Stock Recommendation:

We have applied EV/EBITDA multiple based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight discount to peer average EV/EBITDA multiple (NTM basis) considering a higher Cash conversion cycle of 77.8 days in H1FY21 versus 64.1 days in H1FY20 and an increased Debt to Equity at 0.56x in H1FY21 versus 0.40x in H1FY20.

Considering the aforementioned factors along with the current trading level, we give a “Buy” recommendation on the stock at the current market price of $7.440 per share, down by 0.269% on 3^rd August 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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