By Jason Fittler
AGL is the largest publicly owned natural gas, LPG and electricity utility in Australia and NZ.
The group’s distribution assets include the bulk of the NSW gas networks and the Solaris electricity networks in Victoria. AGL also has investments in wind farms and is in a prime position to benefit from the CPRS (Carbon Pollution Reduction Scheme). Not to be confused with the ETS (Emissions Trading Scheme.)
Ark’s share price has underperformed the market by almost 20% over the last 2 months, reflecting a shift away from more defensive names.
While we would concede that the story lacks some high beta sizzle, but the wind opportunity is not yet priced in by the market and expect this to occur gradually over the next 12 months. Further to this when an ETS comes into Australia AGL is once again in the prime spot to benefit.
Under the ETS, Gas and Wind generators are in favorable positions, this puts AGL on top of the list.
The company is paying a modest dividend of 3.8% partly franked, this is set to grow to 4.66% by 2012. The real excitement is the capital growth, we have a price target of $15.70 on the stock which is 12% above the current price.
However, once an ETS is approved I would expect to see the benefits of the diversafacation within this company.
PS. For more information on AGL Energy please call us on 07 4771 4577.