AGL Energy swings back to profit after wholesale price rises


AGL Energy has swung to a strong profit and predicted an even better year ahead on the back of rising wholesale energy prices and improving gas market conditions.

The power retailer and generator reported a full-year statutory net profit of $539 million for the year to June 30, well above last year’s $408 million loss, when earnings were hit by significant items and adjustments in the fair valuation of its assets.

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Australia’s second-largest energy retailer’s underlying profit, excluding significant items, came in at $802 million, up 14.4 per cent from $701 million. The result beat both analyst forecasts and AGL’s own guidance of an underlying profit between $760 million and $800 million.

And AGL said it expects the current year to be even better, with an underlying profit of between $940 million and $1.04 billion.

If it hits the top of that range, AGL’s underlying profit will have jumped 48 per cent in two years. Investors responded to the news by lifting AGL’s share price by 3.26 per cent to $25.805 in early trade. The stock was up 1.2 per cent at $25.30 as of 11:15am.

The company’s performance comes at a delicate time for the industry. On Wednesday, the nation’s biggest energy retailers were called into a meeting with Prime Minister Malcolm Turnbull to address concerns about spiralling power prices.

“[This year] we are focused on supporting affordable, sustainable and secure energy markets for all our customers,” chief executive Andy Vesey said on Thursday.

“Some customers are hurting from high prices. We acknowledge this is a real issue for our industry and we are committed to playing our part in addressing it.”

Asked whether the forecast $1 billion profit could cause problems for AGL with policymakers, Mr Vesey said that the best way to bring down prices was for their to be investment in supply.

For that to occur shareholders needed “to be rewarded”, he said.

“I think companies that are are financially strong and are rewarded for investments are the ones that can solve the problems,” he said.

Mr Vesey said some steps were already underway, including a move to more standardised presentation of pricing offers.

We just don’t see new development of coal as economically rational even before factoring in a carbon cost.

AGL’s Andy Vesey.

AGL said the result was driven by improved conditions in the wholesale energy market and the management of its energy generation fleet to take advantage of that situation. Wholesale prices have increased recently after the closure of the large Hazelwood brown coal power station in Victoria.

Mr Vesey took his own veiled swipe at the government’s lack of progress on resolving the issue of a clean energy target, as recommended in its Finkel review of the sector, noting “the considerable uncertainty” in the industry.

AGL however was, with partners, working on $2 billion worth of “new, low emissions electricity generation”, he said.

The company “stands ready to invest more when there is certainty on carbon policy,” Mr Vesey said.

That additional supply would help to drive down prices and would be focussed on renewable projects and gas peaking plants, he said.

“We just don’t see new development of coal as economically rational even before factoring in a carbon cost,” he said.

AGL shares rose initially but were then sold steadily through the day to finish down 1.88 per cent at $24.52.

Karen Jorritsma, director in Equity Sales at Citi, said the the market was responded to a higher than expected capital expenditure program and investors were also disappointed at the lack of additional cost-cutting.

“Investors still prefer to pay for stocks that deliver capital mgt over growth hence the share price reaction today,” Ms Jorritsma said.

AGL will pay a partially franked final dividend of 50¢ a share, up 14¢ on the previous final payout. That would see $1.1 billion returned to shareholders this year via dividends and a share buy-back.

with wires

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