AGL Energy Limited

ASX code: AGL www.agl.com.au
Image of a line graph titled “AGL Energy Limited—monthly,” in which years are marked on the x-axis and share prices in dollars are marked on the y-axis. The line graph shows that after rising rapidly, share prices started to drop steadily after some point in the first half of 2017.
Share price ($) 19.08
12-month high ($) 23.21
12-month low ($) 17.44
Market capitalisation ($mn) 12513.1
Price-to-NTA-per-share ratio 2.7
5-year share price return (% p.a.) 11.5
Dividend reinvestment plan Yes
Sector: Utilities Company Sector
Price/earnings ratio (times) 12.0 21.9
Dividend yield (%) 6.2 5.3

Sydney-based power generator and supplier AGL Energy is one of Australia's oldest companies, founded in 1837 as Australian Gas Light. It owns and operates four major coal- and gas-fired power stations — the Bayswater and Liddell black coal power plants in New South Wales (total 4640 MW), the Loy Yang brown coal mine and power plant in Victoria (2210 MW), and the Torrens gas power plant in South Australia (1280 MW). Its growing portfolio of renewable assets includes wind power generation in South Australia, Queensland, New South Wales and Victoria, hydro-electric power generation in Victoria and New South Wales, and solar power in New South Wales. Through its wholesale and retail businesses AGL supplies electricity and gas to some 3.7 million business and residential customers in New South Wales, Victoria, South Australia, Queensland and Western Australia.

Latest business results (June 2019, full year)

Sales rose and the underlying after-tax profit was up, but at a much more modest pace than in recent years. The key factor behind the rise was margin growth in the company's wholesale business, thanks to higher wholesale electricity prices and lower compliance costs for renewable energy certificates. This was partially offset by a decline in gas volume sales to large businesses and a 10 per cent jump in depreciation and amortisation charges. On a statutory basis profits fell sharply, largely due to changes in the value of electricity derivative contracts. Though the company's wholesale business was responsible for just 42 per cent of company revenues, it generated more than 90 per cent of earnings.

Outlook

AGL has been a short-term beneficiary of rising energy prices in Australia, but it now expects a sharp fall in profits. Its early forecast is that the June 2020 underlying after-tax profit will drop to between $780 million and $860 million. This reflects a range of factors, including the high cost of repairing some extensive damage to one of the units at its Loy Yang plant, rising fuel input costs, lower wholesale power prices, retail price regulatory pressures and higher depreciation charges. Meanwhile, it continues with plans to invest more than $2 billion in a series of projects that will bring on stream some 1215 MW of new generation capacity. It is also expanding its activities in the Western Australian energy market — which it entered in 2017 — with the $93 million acquisition of Perth Energy Holdings, the state's third-largest electricity retailer. AGL has also expressed a desire to expand into the provision of data services for households.

Year to 30 June 2018 2019
Revenues ($mn) 12 816.0 13 246.0
  Customer markets (%) 60 57
  Wholesale markets (%) 39 42
EBIT ($mn) 1 664.0 1 660.0
EBIT margin (%) 13.0 12.5
Gross margin (%) 28.5 27.6
Profit before tax ($mn) 1 444.0 1 467.0
Profit after tax ($mn) 1 018.0 1 040.0
Earnings per share (c) 155.22 158.58
Cash flow per share (c) 241.83 253.88
Dividend (c) 117 119
  Percentage franked 80 80
Net tangible assets per share ($) 7.67 7.16
Interest cover (times) 7.6 8.6
Return on equity (%) 12.8 12.4
Debt-to-equity ratio (%) 30.1 32.4
Current ratio 1.6 1.3