Investors have signalled to Morgan Stanley they are unsure about AGL Energy’s D-merger proposal. The broker suspects the ‘new AGL ‘ re-rating and potential upside is the key opportunity.
The main challenges is the limited debt and equity appetite for ‘PrimeCo’ where the valuation will be sensitive to its high-carbon intensity along with long-term pool price forecasts.
In the shorter term, the terms of the offtake agreement between new AGL and PrimeCo is the main uncertainty in creating value because of PrimeCo’s high exposure to emissions and sensitivity to commodity prices without a customer hedge.
Underweight rating. Target is $9.28. Industry view: Cautious.
Target price is $9.28.Current Price is $9.41. Difference: ($0.13) – (brackets indicate current price is over target). If AGL meets the Morgan Stanley target it will return approximately -1% (excluding dividends, fees and charges – negative figures indicate an expected loss).