AGL Energy Ltd (AGL)

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14 February 2020

Results 

Half Year 2020

Half Year 2019

Change

Revenue ($m)

6,312

6,337

-0.5%

Gross margin ($m)

1,836

1,921

-4.2%

Customer accounts (m)

3.74

3.71

+0.8%

Underlying earnings (EBITDA) ($m)

1.07

1.16

-7.7%

Statutory profit after tax ($m)

323

290

+11.4%

Underlying profit after tax($m)

432

537

-19.6%

Interim Dividend ($)

0.47

0.55

-14.5%

AGL Energy (AGL) remains upbeat despite lower first half underlying profits  

What happened?

  • Australia’s largest electricity provider saw its first half statutory profit after tax jump 11.4% to $323 million but its underlying profit after tax, which removes certain significant items, tumbled close to 20%. Revenue was more or less flat on the prior year with the results within AGL’s expectations.
  • The interim dividend was also cut by $0.08 to $0.47 per share as it looks to maintain a payout ratio of 75% against its underlying profit. AGL will trade ex-dividend on 26 February 2020.

Why did it happen?

  • The biggest reason for the discrepancy between the underlying and statutory profit was a less significant loss due to hedging of electricity prices from $251 million in 1H19 to $92 million in 1H20. This is only recognised in the statutory profit number and removed from the underlying result. 
  • Another drag on profit was the decline in gas volumes and revenue generated from sales to Large Business and Wholesale customers. Weaker wholesale markets also attributed to a decline in its total gross margins of 4.2%. The unplanned major outage at its Loy Yang coal powered plant in Victoria was another contributor, 83.5% of generation is still coal powered. Lower large-scale renewable energy certificate (LGC) prices and higher depreciation costs also weighed.
  • AGL’s consumer, or retail, electricity markets remained strong with growing margins, up 18.9%, and lower operating costs driving up underlying earnings which offset the impact to prices from increased regulation and lower retail gas volumes. Retail gas margins also fell 20% due to automatic discounts from the introduction of the Gas Safety Net. AGL managed to lift both electricity and gas customers over the half. Electricity sales volumes lifted across all its markets..

Where to now?

  • During the half AGL announced it was expanding into grid-scale batteries to diversify and modernise its energy portfolio, developing two new projects (one in Qld and one in NSW). It is looking to eventually move away from coal powered generation. 
  • AGL is rather positive with its full year expectations after its first half result with the company tracking ahead of its own expectations. Underlying profit for FY20 is anticipated to be in the upper half of its previously announced guidance range between $780 million and $860 million. The impact of the Loy Yang outage is also expected within the forecast $80 million to $100 million range.
  • AGL will also look to continue its on-market buy-back of shares having acquired 16.8 million of up to 32.8 million shares. The buy-back is anticipated to be completed in 2H20.
  • Despite a positive reaction to its share price on the day results were released, AGL is still underperforming the ASX 200 index over the past 12 months.

 


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