Shares in energy group, AGL had a mixed day yesterday thanks to the 2014-15 annual meeting, especially after comments on capital management and an updated earnings guidance for 2015-16.
They opened down on the previous day’s close of $16.23 at $15.46, but then eased further to the day’s low of $15.24, but then recovered (but still missed yesterday’s modest rebound) after investors digested the earnings guidance, and the comments from chairman Jerry Mayfield to the AGM that ruled out any capital management moves, such as a buyback or higher dividend.
So by the close the shares were down 1.6% at $15.97.
AGL 1Y – AGL puts shareholders on hold
AGL told the market that it expects to lift underlying profit in the year to June next year, helped by the recent acquisition of the coal-fired Macquarie Generation, an improvement in demand among residential electricity customers (which will still remain weak, however). It also expects “modest” rises in wholesale electricity, gas and renewable energy certificates and improved retail margins.
AGL said it expects underlying profit to rise to between $650 million and $720 million for 2015-16, up from $630 million in the 2014-15 financial year, which was up 12% from the previous year.
The main negatives at this stage appears to be further, small non-cash accounting changes, which are expected to reduce pre-tax profit by about $50 million, and an increased operating loss for its New Energy division. AGL also expects statutory profit to be hit by a $30 million pre-tax impairment related to renegotiations of its enterprise bargaining agreement at its Loy Yang A coal-fired electricity generator in Victoria.
But it was the comments on climate change and capital management from chairman Jerry Maycock that attracted the most attention.
He said that the company’s stronger cash generation performance and cost reduction targets had prompted markets speculation that the board could soon consider capital management options.
“In other words that AGL may consider returning capital to shareholders or paying higher dividends,” he said.
“While the prospect of generating cash surplus to foreseeable requirements is encouraging, the board considers that it is premature to encourage any such speculation.”
The chairman said that the company had to first deliver on forecasts and maintain a strong balance sheet and strong credit rating to fund investment in growth projects.
“If and when that is achieved, we will carefully weigh up all the options available to maximise the value of the company,” he said.
Mr Maycock also used his speech to the meeting to outline that the company held the view that the need for a purposeful plan to decarbonise Australia’s power generation was clear.
But he said there was a real need for a coherent national plan and supportive government policies to help achieve that, which he said would take several decades if the country was to avoid “immense and unaffordable” cost impacts on Australian consumers and the economy.
“Overall AGL is committed to working with policymakers, and playing a proactive part in enabling Australia to meet its carbon reduction targets, consistent with the objective of limiting human induced climate change impacts to warming levels of less than 2 degrees celsius,” he told the meeting.
“We are acting to do so while taking care of our obligations to our shareholders, and while providing a secure, reliable and affordable supply of electricity and gas to our 3.8 million customers.”
