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AGL Energy Limited (AGL)

Team Veye | 12 Jan 2021 ASX - AGL
AGL Energy Limited (AGL)
Call Buy
Asx AGL

AGL Energy Limited (ASX: AGL) is an Australia-based company that supplies energy and other services. The Company’s segments include Wholesale Markets, Customer Markets, Group Operations and Investments. Wholesale Markets comprises Wholesale Electricity, Wholesale Gas and Eco Markets and also controls the dispatch of its owned and contracted generation assets and associated portfolio of energy/hedging products. Customer Markets comprises the consumer and large business customer portfolios and is responsible for the retailing of electricity, gas, solar and energy efficiency products and services. Group Operations comprises its power generation portfolio and other sites and operating facilities across the thermal, renewables, natural gas, and other business units. Investments comprise its interests in the ActewAGL Retail Partnership, Perth Energy, PARF, Advanced Microgrid Solutions Inc, Energy Impact Partners' Fund, Solar Analytics Pty Limited, Sunverge Energy Inc and Ecobee Inc. (Profile source: Reuters)

From the Company Reports

Trading Update and Revised FY21 Guidance

AGL Energy Limited (AGL) on 21 December 2020 updated its earnings guidance for the financial year ending 30 June 2021 (FY21). AGL now expects Underlying Profit after tax for FY21 to be between $500 million and $580 million, down from the previous guidance range of $560 million to $660 million.

(Chart source: TradingView)

This update followed confirmation of the anticipated impact of the transformer incident at Unit 3 of the Liddell Power Station in New South Wales announced on Friday, 18 December 2020. AGL expects the unit will return to service in early March 2021. AGL estimates the financial impact of this outage, including direct trading impacts on the day of the event, estimated portfolio trading impacts through to early March 2021 and the direct cost of replacing the transformer, to be $25 million (after tax). The update to AGL’s FY21 guidance range reflects this impact as well as increasing earnings pressure arising from the recent trading performance and a continued deterioration in the market and operating conditions in Wholesale Electricity.

AGL’s original earnings guidance for FY21 provided in August 2020 noted headwinds including the impact of lower-cost supply contracts maturing in Wholesale Gas, lower market prices in Wholesale Electricity, higher depreciation expense, and costs associated with responding to the COVID-19 pandemic. AGL’s most recent forecasts of overall demand and pricing, having regard to December trading results to date, have softened further as a result of these headwinds.

(Graphic Source – Company Reports)

Impact on FY22

The financial impact of the Liddell Unit 3 outage is not recoverable via insurance in future years. AGL also notes that it had previously stated that there will be no recurrence in FY22 of the FY21 contribution to Underlying Profit after tax of $80 million to $100 million expected from insurance proceeds related to a prior outage at Unit 2 of the Loy Yang A power station in Victoria. In addition to the non-recurrence of these Loy Yang A insurance receipts, AGL anticipates a further material step-down in Wholesale Electricity earnings in FY22 as hedging positions established when wholesale prices were materially higher progressively roll off, and are re-contracted at lower levels reflecting the deterioration in wholesale prices.

AGL enters binding agreement to acquire 100% of the Click Energy Group

AGL Energy Limited on 31 August 2020 announced that it had entered into an agreement for the acquisition of 100% of the shares of Click Energy Group Holdings Pty Ltd (Click Energy), a wholly owned subsidiary of ASX listed amaysim Australia Limited (ASX: AYS), for $115 million. The transaction does not include amaysim’s mobile customer base or business.

(Chart source: Barchart)

FY20 results announcement and FY21 earnings guidance

AGL Energy Limited (AGL) on 13 August 2020 announced its results for the financial year ended 30 June 2020 (“FY20”)

FY20 Result Highlights

  • Statutory Profit after tax: $1,015 million, up 12 percent on FY19
  • Underlying Profit after tax: $816 million, down 22 percent on FY19, within guidance range provided for FY20
  • Net cash from operating activities: $2,156 million, up 35 percent on FY19
  • Consistent growth in total services to customers to 3.95 million
  • Resilient portfolio generation despite AGL Loy Yang Unit 2 outage, COVID-19 and ongoing maintenance

(Graphic Source – Company Reports)

  • $135m of recurring operating cost efficiencies since FY18 invested in growth and transformation
  • Final FY20 dividend declared of 51 cents per share, taking total FY20 dividends declared to 98 cents per share, 80% franked
  • Intention to pay special dividends during FY21 and FY22 and temporary removal of franking during this period
  • Guidance for FY21 Underlying Profit after tax: between $560 million and $660 million

 

Key Financial Metrics:

Peer analysis

 

 

 

 

 

Key Information

 

 

 

 

 

Company

Net income (TTM)

Market cap

P/BV

Debt/Total Capital

Pay-out(5yr Average)

Chugoku Electric Power Co Inc

482.65m

6.03bn

0.6755

0.7725

54.66

Wintime Energy Co Ltd

41.29m

6.15bn

0.7305

0.6531

30.46

China Resources Power Holdings Co. Ltd.

1.18bn

6.68bn

0.5088

0.5317

50.81

Ausnet Services Ltd

344.60m

6.86bn

2.17

0.748

108.68

GUANGXI GUIGUAN ELECTRIC POWER CO.,LTD.

361.24m

6.96bn

2.38

0.5713

62.83

Datang Intl Power Generation Co Ltd

164.94m

7.02bn

0.6502

0.6059

192.28

Xinyi Energy Holdings Ltd

161.56m

7.08bn

4.12

0.2065

--

Contact Energy Limited

116.70m

7.15bn

2.95

0.3137

234.9

Aboitiz Equity Ventures Inc

392.39m

7.17bn

1.52

0.6069

33.28

AGL Energy Ltd

1.02bn

7.52bn

0.9314

0.2779

88.8

GD Power Development Co Ltd

201.19m

8.49bn

0.7884

0.5951

53.04

Sichuan Chuantou Energy Stock Co Ltd

602.08m

8.76bn

1.55

0.2355

38.07

Adani Transmission Ltd

156.08m

8.79bn

5.96

0.718

0

Origin Energy Ltd

83.00m

9.02bn

0.7099

0.3504

--

Manila Electric Company

434.63m

9.03bn

4.34

0.341

51.84

 

Financial Metrics:

  • Short term Liabilities: AGL Short term assets are A$3.1B which are sufficient to cover its short term liabilities of A$2.4B
  • Debt Level: AGL debt to equity ratio is t satisfactory level of  37.2%
  • Reducing Debt: AGL debt to equity ratio has reduced from44.6% to 37.2% over the past 5 years
  • Debt Coverage: AGL debt is well covered by operating cash flow of 71.7%
  • Interest Coverage: AGL interest payment on its debt are well covered by EBIT (11.1x)
  • Notable Dividend: AGL dividend of 8.01% is higher than the bottom 25% dividend payers in the Australian market
  • High Dividend: AGL dividend of 8.01% is in the top 25% of dividend payers in the Australian market (5%)
  • Price/Book Value: AGL is good value based on its P/BV of 0.9x compared to the industry average of 1.7x
  • PE Vs Industry: AGL is good value based on its P/e of 7.7x compared to the industry average of 20.7x
  • PE Vs Market: AGL is good value based on its P/e of 7.7x compared to the industry average of 22.9x
  • At current levels of $12.23, AGL is trading below its estimated fair value of$26.6.

 

AGL Energy Limited (ASX: AGL) 
Stock Overview
Sector Energy
Risk Medium
Market Cap $7.62 billion
Share Volume 623.03 million
EPS (FY) $1.58
PE RATIO 7.7
Yearly Dividend Yield  8.01%.
Target Price (s) T1 $14.30    T2 $16.05
Stop Loss $11.30
Recommendation BUY
52 weeks High $21.17
52 weeks Low $11.95
Managing Director Brett Alan Redman
Chairman of the Board Graeme Peter Hunt

 

Market Risk Analysis

Wholesale market pricing and volatility: AGL is unable to effectively manage the impact of wholesale price changes and market volatility. AGL’s longer-term strategic risks (government intervention, regulatory intervention and climate change) remain and have been heightened by the uncertainties created by the pandemic. AGL is unable to meet expectations and/or deliver on its commitments to transition to a low carbon future within an acceptable timeframe.

Technical Analysis

The stock after remaining bearish for a long time broke the descending wedge pattern. Stock while making lower lows had shrinking volumes. In the current month, the stock is trading near the support levels and at the bottom of the Bollinger bands. RSI has started turning slightly positive along with MACD just entering positive territory. Price action shows it becoming bullish. The stock faces resistance near $13.50. It can have the potential of offering a good buying opportunity.

 

Veye’s Take

The acquisition of Click Energy Group, which follows the recent acquisitions of Perth Energy and Southern Phone, aligns with AGL’s growth strategy and leverages the investment made in customer service platforms. The acquisition of the Click Energy business allows AGL to continue to grow its customer base and deliver value through all its products and services. With AGL’s cost to serve already below that of Click Energy’s, it believes that it will be able to unlock further value as these customers share in further benefits from its continuing investment in automation, optimisation and digitisation. AGL expects the acquisition to be modestly accretive to AGL’s underlying earnings. AGL’s operating cost controls continued to enable it to reinvest in the business. It had delivered $135 million of recurring operating cost efficiencies since FY18 from systems investment and other efficiency programs, which have been reinvested in the ongoing transformation of the business. Veye recommends a "Buy" on “AGL Energy Limited” at the current price of $11.95


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