UBS reduces its valuation by -25%, having lowered wholesale electricity price forecasts. The broker expects AGL Energy will continue to underperform, largely because of its inflexible generation assets that are over-exposed to lower average wholesale prices.
The broker also highlights several issues regarding the proposed de-merger, estimating around $600m of additional equity could be required to support an investment grade credit rating for the new entities. Sell rating maintained. Target is reduced to $7.60 from $10.10.
Sector: Utilities.
Target price is $7.60.Current Price is $8.04. Difference: ($0.44) – (brackets indicate current price is over target). If AGL meets the UBS target it will return approximately -6% (excluding dividends, fees and charges – negative figures indicate an expected loss).
