COMPANY NEWS & UPDATES
AGL Energy Limited ( AGL )
Accumulate Valuation $ 17.00
Earnings Forecast
Yr to June |
2020A |
2021F |
2022F |
|
Sales Revenue
($ M )
|
12,160 |
11,685 |
11,478 |
|
Reported
Profit ($ M )
|
815.9 |
551.6 |
352.1 |
EPS ( c ) |
127.4 |
88.5 |
56.5 |
Div ( c ) |
98.0 |
88.5 |
56.5 |
P / E ( x ) |
14.9 |
13.6 |
21.3 |
Yield (%) |
5.2 |
7.3 |
4.7 |
Franking (%) |
80.0 |
-- |
-- |
|
EPS Growth
(%)
|
-19.7 |
-30.5 |
-36.5 |
* Profit & EPS adjusted for options , goodwill , notional earnings and nonrecurring items .
Downgrade in Earnings Guidance
AGL Energy HAS downgraded FY21 guidance to between $ 500 million and $ 580 million . The two drivers of the downgrade were :
1 . the recent outage at the Liddell coal-fired power station ; and
2 . weaker wholesale electricity prices .
Both events are likely to hurt profits in subsequent years as well .
We reduce our NPAT forecasts for the next three years by about 10 % on average and trim our valuation 3 % to $ 17.00 per share . Nonetheless , we continue to consider the stock undervalued on a long-term view and take comfort from the firm ' s sound financial position . Even on downgraded earnings , we expect net debt / EBITDA to remain below 2 times . This compares favourably with most Australasian utilities which tend to sit between 2 and 3 times .
In mid December , a fire during routine maintenance caused damage to a transformer in Unit 3 at Liddell , causing the unit to be shut down . Management estimates the Liddell incident will detract $ 25 million from profits until it returns to service in early March 2021 . The balance of the downgrade reflects worsening operating conditions in AGL ' s generation division , including :
� softer demand , � weaker prices ; and
� several small power station outages
since original guidance was given in August . Demand has been weak because of mild winter and summer weather , Victorian lockdowns and ongoing growth in rooftop solar installations . Wholesale electricity prices in Victoria and South Australia have fallen more than 10 % since August to about $ 50 per megawatt hour , while New South Wales prices have risen a few percent to $ 57 per MWh .
Weaker wholesale prices are expected to impact earnings this year and in subsequent years as favourable hedging matures and is reset at lower prices . However , we continue to believe wholesale prices will rise back to about $ 70 per MWh in the mid-2020s as rising gas prices increase the cost of running gas-fired power stations , thereby increasing the electricity price they are willing to accept .
While there ' s been no major impact on Australian electricity prices yet , Asian LNG prices are soaring because of a cold winter and coal shortages in China . Futures pricing suggests the LNG netback price will reach about $ 12 per gigajoule in January 2021 , before settling back to about $ 7 per GJ for the next two years . This compares favourably with an LNG netback price below $ 3 per GJ in mid-2020 . We anticipate stronger Asian LNG prices and depletion of some Australian gas fields will support domestic gas prices and thus electricity prices .
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