AGL Cool On Outlook Despite Bumper Profit
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While energy producer and retailer AGL Energy says it is on track to deliver a full-year underlying profit of close to $1 billion after revealing a surge in first half earnings and a 32% boost to interim dividend, investors were spooked by the company’s less than enthusiastic outlook for the rest of the financial year.
Australia’s second largest energy retailer told the ASX yesterday that its profit had nearly doubled to $622 million from $325 million a year earlier, with the company benefiting from high wholesale electricity prices and gains from hedging activities.
Its underlying profit, which excludes significant items, leapt a solid 27% to $493 million for the six months to December 31, while revenue was up a more sedate 7% at $6.45 billion (indicating the considerable improvement in profit margins thanks to last year’s big government mandated electricity price rises).
The company also reconfirmed its December full-year guidance for underlying profit after tax of between $940 million and $1.04 billion, but immediately qualified that with this comment in the release:
"AGL’s current expectations are consistent with the middle of this range. This guidance reflects expectations of continued margin growth in the Wholesale Markets business offsetting current margin and cost pressures in Customer Markets, the company said in yesterday’s statement to the ASX (https://www.agl.com.au/about-agl/media-centre/asx-and-media-releases/2018/february/agl-fy18-interim-results-and-affirmation-of-fy18-guidance).
And in prepared comments in the release, CEO Andy Vesey was very circumspect, saying:
“At the same time, we are doing what we can to address the impact on customers of high market prices for energy through our emphasis on fairness, simplicity and transparency.
“For example, in recent months we applied automatic loyalty discounts for customers on standing offers in some states and launched AGL Essentials – a guaranteed low-rate, digital -only product – and we are soon to launch AGL Pre-Paid, a product designed to provide peace of mind to customers.
"We are committed to delivering further solutions for customers in coming months – and to doing all this at the lowest possible cost. “Amid a competitive market and ongoing transition in our sector, AGL is delivering value for customers and shareholders.”
The shares dipped 4% as investors took this to mean the profit won’t crack the billion dollar mark (greedy souls) and that there could be higher than expected costs from the consumer business in this half from these measures.
But as the session went on they realised that a profit around $960 million is still an awful lot of money and there will be rewards, as the sharp rise in the size of the interim payout confirmed. The shares edged higher to end the down around 2% at $22.10.
It will pay an interim dividend of 54 cents a share - up from the year-earlier payout of 41 cents. That’s a rise of 32%. Seeing the company paid a total for 2016-17 of 77 cents a share it is looking as though it will be easily topped by June 30 this year.
CEO Andy Vesey said in yesterday’s statement the results provide a solid foundation for the full year.
"This strong first-half result reflects disciplined capital allocation and the continued strength of our wholesale markets business," he said.
Underlying earnings from its wholesale markets business rose 25% to $1.23 billion, which more than offset a decline in earnings at the smaller customer markets segment that was affected by lower margins in the gas business.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.