AGL Energy Limited (AGL)

By Jason Fittler

GL Energy Limited is an integrated energy company that has been in existence for more than 175 years.
It includes retail and merchant energy businesses, power generation assets and an upstream gas portfolio.
AGL has Australia's largest retail energy and dual fuel customer base, supplying around 4.1 million customer accounts. This includes customers supplied with gas and electricity through AGL's joint venture partnerships, ActewAGL and AlintaAGL.
AGL has a diverse power generation portfolio, including base, peaking and intermediate generation plants.
We view the earnings uplift from incremental Qld gas sales and NSW tariff changes as non -recurring and largely in the share price.
The key to the share price will be the delivery of cost savings and asset sales flagged at the strategic review.
The upside for AGL could result from monetization of its gas reserves in both QLD and NSW and benefits from deregulation of NSW electricity markets. Acquisition of cheap base load capacity via NSW Government sell down could also provide upside.
An improvement in prices received by generators following the end of the carbon tax could lead to higher returns.
The downside would result from any restrictions being imposed again on NSW CSG extraction or difficulty in selling QLD gas.
If the Australian economy moves quickly towards a decarbonised economy, this could pose significant threats to AGL given its coal fired generation portfolio.
Further downside risk exists in tighter retail margins. Upcoming catalysts are the delivery of cost savings and asset sales flagged in the strategic review.
AGL is a good long-term holding in a portfolio with solid history and income, on weakness it is worth adding to your portfolio.