The decline in AGL over the past five years is partly due to the impact of the sharp drop in wholesale energy prices on the company’s core earnings. Thanks in large part to a wave of new renewable energy that has flooded the market in declining wholesale energy prices to the point where coal and gas generators are struggling to compete.
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While net profit increased to $860 million for the year, AGL announced in August that core earnings — a number the market is watching closely — fell 58.1 percent to $225 million. Higher global energy prices are likely to flow into AGL earnings, albeit with a delay somewhat due to the way countries set retail energy prices.
The company provided fiscal year 23 guidance for a base net profit of between $200 million and $230 million. Underlying EBITDA is expected to be between $1.25 billion and $1.45 billion, an increase of $100 million in fiscal year 22.
industry: Services
Main product: energy
The main characters: Interim CEO Damien Nix, President Patricia McKenzie, Major Shareholder Mike Cannon-Brooks.
Bull case: Management remains hawkish but is confident the company is well-positioned to benefit from higher electricity prices, especially with the start of hedging against stocks.
Morningstar has rated the stock as undervalued. Senior equity analyst Adrian Atkins said banks have been reluctant to lend to AGL due to its emissions record, a long-standing problem for a company with the need to refinance significant debt due in the next three years.
Atkins believes that the company’s commitment to exit coal by 2035 will give them access to new capital and allow investors to focus on the outlook for immediate earnings, which he deems “very good.”
“Maybe it would take the AGL to refinance a significant portion of the debt for the market to really say, ‘Okay,'” [the outlook] It really has changed.”
bear status: On the other hand, AGL’s plan to decarbonize and the chaos surrounding the board may be one of its biggest risks. UBS analyst Tom Allen said they are waiting for more details on how the company plans to raise the $20 billion needed to transition once positions on the board are completed.
Allen also raised concerns that the company’s plan to target a two-degree decarbonization path, rather than a 1.5-degree path that would force a coal exit by 2031, might not be enough to satisfy lenders who care about environmental, social and corporate governance.
“Overall, this plan is an important step in the right direction from an ESG perspective,” Allen said in a note to clients. However, it is likely that investors and other stakeholders will need more details before they can support the plan at the AGM. [on November 15]. “
Atkins, taking a bearish tone, said that while he believed most of the big issues had been resolved, there was still uncertainty about Grok’s board candidates and the possibility of another buyout push from Canadian investment giant Brookfield.
“It’s just a reminder that there are a lot of outside forces in this company,” he said.
- The advice provided in this article is general in nature and is not intended to influence readers’ decisions about investment or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.
Originally published at Melbourne News Vine
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