AGL a Cautionary Tale for the Energy Sector

Energy giant AGL’s expected $2.3 billion loss for the six months to December is a warning to the rest of the energy sector about the fading financial attractiveness of these assets.

AGL’s loss was always on the cards in the wake of the $3.5 billion ($2.7 billion net) of write downs revealed last week.

And directors have slashed AGL’s ordinary interim dividend by a third.

And the company warned in yesterday’s briefing presentation and comments that more weakness in pricing is in the offing.

More than half the value of the writedowns were on power offtake contracts with wind farms at future prices well above current and prospective future levels. The remainder were cuts to the value of its coal and gas and other generating assets.

The weakness of the result was underlined by a 27% slide in underlying profit for the half to $317 million.

CEO Brett Redman said the weakness came down to the “sharp decline” in wholesale power prices, renewable energy certificates, and lower gross margins on wholesale gas.

In his presentation to shareholders, Redman noted the company expects “further margin compression” due to the unique market conditions in the energy market.

“Spot and forward electricity prices have decreased rapidly to levels unseen since 2015,” he said.

‘On the one hand, supply has increased as a result of new grid-scale and rooftop renewable generation combined with the deferral of major planned outages at thermal plant as a result of COVID-19.

“On the other hand, demand has fallen due to mild weather and COVID-19,” he said.

Looking to the rest of this financial year though, AGL was a little more upbeat, sayin its underlying profit guidance of between $500 and $580 million remained unchanged for the full year.

AGL declared an interim ordinary dividend of 31c a share and a special dividend of 10c a share, after the company tipped a special dividend program in its 2019-20 results.

That 41 cents a share though is less than the 47 cents paid out in the 2019-20 interim. Excluding the one off 10 cents a share, this year’s interim is down a third on last year.

AGL shares rose 1.2% to $11.30 thanks to a bit of relief that the utility group had no more bad news to drop in yesterday’s release.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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