AGL Energy (AGK) disappointed the market yesterday with profit forecast which verged on spin.
The company said it was looking at a higher profit for the year – but seems to be placing an inordinate amount of hope on a cold winter next year.
And there was a surprise big write down in the $1.5 billion purchase of NSW power producer Macquarie Generation (MacGen).
AGL said that profit for the 2015 financial year, excluding one-off items is expected between $575 million and $635 million, up from the $562 million earned in 2013-14.
But that bottom-line profit will be dragged down by about $156 million of after-tax costs in relation to the MacGen purchase which analysts said was surprisingly large 10% of the cost of the acquisition.
That means the company overpaid for the deal (and NSW taxpayers got more than perhaps they might have expected). But the company said yesterday that the sale price was less than what the NSW government had been hoping for.
AGK YTD – AGL spins, banks on cold winter
"Consensus is currently at the high end of their guidance range," said RBC Capital Markets analyst Paul Johnston. "The problem with their announcement and why the stock has fallen a fair bit more than at first glance that release would suggest is the quite large adjustment that they have revised in respect of MacGen.
"That’s a very large number in the context of the size of the acquisition: to have 10 per cent accounted for in a significant item is very high."
In a trading update released before the AGM, the company said its underlying profit would be affected by the abolition of the carbon tax and the closure of its LPG plant in Sydney.
It is also seems to be banking on a return to “more normal” winter weather in July and August, following a warmer-than-usual winter in 2014.
AGL has previously indicated that it expects to take a $200 million hit to its earnings this financial year due to the abolition of the carbon tax and associated support payments, and the shutting down of its Kurnell LPG extraction plant, which is a consequence of the closure of Caltex’s oil refinery.
The abolition of the carbon tax hurts the values of AGL’s renewable energy assets and means AGL won’t receive $100 million in transitional assistance payments linked to its Loy Yang power station in Victoria.
AGL shares eased 0.8% to $13.59.
