By Jason Fittler
AGK has the largest retail energy and dual fuel customer base with some 3.24 million customers.
It operates a diverse portfolio of generating assets including base, peaking and intermediate generation plants spread over traditional thermal generation complemented by growing renewable sources including hydro, wind, geothermal, landfill gas and biomass.
It is Australia's largest private owner of renewable energy assets with a particular focus on wind. It is building a significant investment in upstream coal seam gas reserves.
We have a valuation of $17.60, which is backed up by a sum of the parts valuation around $17.50.
AGK boasts robust operating cash flow from necessity commodities - gas and electricity.
The divestment of non-core assets sees the gearing ratio below 10%, which is under the government’s emissions trading scheme (ETS) and Mandatory Renewable Energy Target (MRET).
AGK's investment in wind generation should be a significant beneficiary of Australia's adoption of a green energy policy.
First half net profit fell 3.7% from $234.8m to $226.2m with operating earnings down 6.9% from $358.9m to $344.1m.
Earnings per share fell 4.8% to 49.9¢; however, dividends were steady at 29¢ unfranked with the second half to be fully franked.
I see the recent price fall as an opportunity to buy this stock as a long-term core portfolio holding.
The 2011 dividend will have a gross yield 5% which will increase to 6.4% in the 2012 year.
On top of this, you can expect growth in the share price of 20%.
For more information on AGL Energy (AGK) please contact us on 07 4771 4577.