AGL Energy Limited

AGL Details

FY21 Financial Performance: AGL Energy Limited (ASX: AGL) is one of the leading providers of gas, electricity, and telecommunication services to over 4.5 million residential, small, and extensive business and wholesale customer

Operating Metrics: Revenue was registered at $10.942 billion, down from $12.160 billion in FY19, primarily attributed to unfavorable energy price movements. Underlying profits for the period declined to $537 million from $808 million in FY20, critically attributed to $342 million shortfall in trading and origination of electricity and $180 million plunge in trading and origination of gas.

Cash Flow Movements: Net cash flow from operating activities stood at $1,250 million down from $2,112 million in PcP. The significant decline was vastly attributed to contracted underlying EBITDA which declined by 18% to $1,666 million.

Financial Standpoint: As of 30 June 2021, AGL reported cash balance of $88 million, down from $141 million in previous year and short-term investments stood at $539 million relative to $640 million previous year. However, AGL holds significant room for debt covenants as gearing covenant stands less than 50% (currently 35.1%).

FY21 Bottom Line Flow; Analysis by Kalkine Group

Key Risks

AGL is highly sensitive to wholesale and retail market pricing and volatility for delivering utility services, currently witnessing a downturn. Further, increased adoption of in-house solar energy further deprived aggregate electricity demand.

Outlook

AGL expects underlying EBITDA to wander in a range of $1,200 million to $1,400 million in FY22. Further, NPAT for the same period is estimated to stay range bound by $220 million - $340 million. Additionally, AGL is on track to deliver a minimum of $150 million in operating cost savings in FY22 and targeting $100 million reduction in sustaining capex by FY23.

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

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation

The stock of AGL gave a negative return of ~54.273% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $5.220 - $14.380. The stock has been valued using the EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight premium to its peers’ EV/EBITDA average, considering its cost savings initiatives and decent outlook. For valuation, few peers like Origin Energy Ltd (ASX: ORG), Oil Search Ltd (ASX: OSH), Beach Energy Ltd (ASX: BPT) have been considered. Considering reasonable cost saving strategies, improving forward wholesale prices, Liddell’s EBITDA contribution, current trading levels, and upside indicated by valuation, we give a “Speculative Buy” recommendation on the stock at the closing price of $5.650, down by ~1.224% as of 01 November 2021.

AGL Daily Technical Chart, Data Source: REFINITIV

Note: The purple line reflects the RSI (14-day period)

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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.