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AGL

AGL Ltd HY20 Results – Underlying Profit Down 20%

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

AGL Ltd (ASX: AGL) is one of Australia’s largest energy providers. AGL has a large energy portfolio with projects that include solar, wind, thermal, hydroelectric, natural gas, gas storage and LNG imports. AGL has a market capitalisation of A$12.9 billion.

AGL -

What are the key features of AGL’s HY20 results?

  • Statutory net profit after tax (NPAT) for HY20 is A$332 million, up 11% compared with the corresponding period.
  • Underlying NPAT for HY20 is A$432 million, down 20% compared with the corresponding period.
  • Underlying earnings per share for HY20 is A66.4 cents, down 19% compared with the corresponding period.
  • Interim dividend for HY20 is A47 cents per share (80% franked), down 8 cents per share compared with the corresponding period.

 

What are the drivers of this result?

The main driver of underlying NPAT being significantly down was due to the unplanned outage at Loy Yang, increased depreciation costs as a result of high capital investment in recent years, and lower year-on-year prices for wholesale electricity and renewable energy certificate prices.

AGL’s Managing Director and CEO, Brett Redman said:

underlying Profit after tax was down 20 percent in the half, primarily due to the outage of Unit 2 at AGL Loy Yang, increased depreciation following record levels of investment in recent years, and the impact of market headwinds relating to lower year wholesale energy prices and reduced gas volumes.

 

What is the outlook for AGL?

AGL’s management note FY20 guidance is as follows:

  • AGL expects Underlying Profit after tax for FY20 to be in the upper half of its guidance range of between A$780 million and A$860 million.
  • Operating head winds previously communicated to the market are expected to remain for the second half of FY20 and into FY21. These include lower wholesale prices for electricity and renewable energy generation certificates and increasing fuel costs as legacy supply contracts mature.

AGL has commenced capital management activities that includes an on-market buy-back of up to 5% of its issued share capital (32.8 million shares). AGL has acquired 16.8 million shares for A$332 million executed at an average price of A$19.72. AGL management mentioned that AGL reserves the right to vary, suspend or terminate the buy-back at any time and anticipates completing it in the second half of FY20, subject to market conditions.

One potential uncertainty for the outlook of AGL is that energy prices are trending downwards in all states and territories in Australia. If this downwards trend continues, AGL cash flow could be affected in the short to medium-term.

 

What is the market reaction to AGL’s HY20 results?

The market reaction to AGL’s HY20 results was positive. AGL share price was up around 3%. AGL’s share price is currently trading at A$20.30. AGL has a forward P/E ratio in the mid-teens and an annual dividend yield of around 5.5%.


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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