Two stocks that surged – AGL Energy and BlueScope Steel

AGL Energy Ltd


AGL Details

·       Positive guidance drove the stock higher: AGL Energy Ltd (ASX: AGL) stock surged over 5.8% on September 28, 2016 as the group issued a positive guidance for FY17. The group now forecasts an Underlying Profit in the range of $720 million and $800 million. This rise for FY17 is driven by the Wholesale electricity margins (This benefit depends on the competitive environment, the timing of retail price changes and AGL’s hedging profile) coupled with contribution from customer value strategy and operational transformation targets. AGL expects year-on-year improvements to be weighted towards the second half of FY17. This guidance statement comes after previously disclosed challenges including unseasonably mild weather in July/August and the anticipated reduction in gas portfolio EBIT of at least $100 million compared with FY16. Moreover, the group reported that they would continue their on-market buy-back program of up to 5% of its issued share capital, representing 33,735,619 shares with a market value of $596 million (as per AGL’s closing share price on 27 September 2016). The group’s has been investing in innovations including their $300 million Digital Transformation Program, which would benefit their customers. On the other hand, AGL's statutory loss after tax attributable to shareholders reached $408 million for FY16, as compared to statutory profit after tax of $218 million in the prior corresponding year. AGL stock lost over 6.7% in the last four weeks (as of September 27, 2016) and the pressure might continue in the coming months given the ongoing volatility in the markets.

·       Recommendation: We maintain our “Expensive” recommendation on the stock at the current price of $18.70


AGL Energy FY16 highlights (Source: Company Reports)
 
BlueScope Steel Limited


BSL Details

·       More upside potential: BlueScope Steel Limited (ASX: BSL) stock recovered over 4.3% on September 28, 2016 and rose over 25.4% in the last three months (as of September 27, 2016), and this appears to be at the back of global macroeconomic factors impacting the commodities market. To withstand the volatility in the steel prices, BSL has cut operating costs at Port Kembla and continues to focus on costs going forward. BSL enhanced its net profit after tax to $353.8 million for fiscal year of 2016. BSL is also building a solid balance sheet and accordingly controlled their net debt by $595.4 million from 31 December 2015 to $778.0 million as of June 30, 2016. BSL is targeting to control their leverage to below 1.0 times net debt to EBITDA. The group forecasts an underlying EBIT to be around 50 per cent more in the first half of 2017 as compared to the second half of underlying EBIT, which was $340.4 million.

·       Recommendation: We believe the stock rally would continue in the months and maintain our “Hold” recommendation on the stock at the current price of $7.96

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