AGL - orig. The Australian Gas Light Co. Now one of Aussies biggest energy providers

[peat]

So I couldnt find a thread on AGL so I've started one and I'll paste the relevant posts from the Power Shares thread

I know its on the ASX but AGL is on my list of power companies. And it announces half year on 11/2

It recently lowered its forecast guidance down to $500 m underlying for this FY. (ending June)
But this is still something around $.77 per share and it has div policy of 75% of underlying and it has mooted paying special dividend up to %100 of underlying profit for the next couple of years since it is cash rich.

so .77 / 11.55 = nearly 7% yield

Nice yield, horrible downtrend.

[peat]

At first glance AGL looks "OK", here is a recent review of their power generation assets I did:
Attachment 12275

Attachment 12276

Their renewable assets initially look substantial, even if it is only a comparatively small proportion of their portfolio, the problem is that when you look closer into the ownership structure of their renewable assets, you will find that QIC Global Infrastructure Fund actually own 80% of most of their renewable assets and AGL only own 20%.

This makes my initial pie graph above incorrect as AGL's power generation assets "owned" by them are actually more like the below graph:

Attachment 12277

AGL is basically a coal/gas power generator with diminishing returns, I believe AGL is a value trap if you are going long, especially with their upcoming large generation asset closures. However, there is potential for a short term trade on a confirmed reversal of trend which I am waiting for.

Thanks Norwest I appreciate your comments.

[peat]

Yesterday they wrote of a few billion.
http://research.iress.com.au/IDS/old...091850000&ppv=

An awesome start to my involvment with this company.

AGL Energy Limited (AGL) has today announced it intends to recognise charges of $2,686 million (post-tax)in its financial statements for the period ended 31 December 2020. These charges reflect $1,920 million in provisions for onerous contracts related primarily to legacy wind farm offtake agreements, increases toenvironmental restoration provisions of $1,112 million, and further impairments of $532 million across AGL’s Generation Fleet and Natural Gas assets, net of a positive tax effect of $878 million.


However note that this has not changed the forecast guidance for the current year ending June. Presumably dividend estimations have not changed either.
So yield (or value trap as Norwest points out ) remains a plus.


I also note today that Moodys Investors Service has today affirmed AGL Energy Ltd's Baa2 long-term issuer, senior unsecured and senior unsecured bank credit facility debt ratings. And outlook remains stable. There are a some positive comments in their report which one may latch onto.
https://www.moodys.com/research/Mood...PR_438734?cid=

[Snoopy]

Yesterday they wrote off a few billion.
http://research.iress.com.au/IDS/old...091850000&ppv=

An awesome start to my involvment with this company.

AGL Energy Limited (AGL) has today announced it intends to recognise charges of $2,686 million (post-tax)in its financial statements for the period ended 31 December 2020. These charges reflect $1,920 million in provisions for onerous contracts related primarily to legacy wind farm offtake agreements, increases toenvironmental restoration provisions of $1,112 million, and further impairments of $532 million across AGL’s Generation Fleet and Natural Gas assets, net of a positive tax effect of $878 million.

This is quite extraordinary Peat. How did all their purchasing from a clean green wind energy source go so wrong? And who was on the other side of the contract, the outfit from which they bought their green energy? Whoever it was that stitched up AGL, those might be the guys to invest in!

SNOOPY

[kiora]

Couldn't find them with quick search but
"The ASX has a smattering of renewable energy stocks worth a look. According to the IEA report, wind and solar stocks lead the renewable energy sector right now. A few ASX entries are already generating revenue and profit while others are in earlier stages of development.

In the first table we look at two diversified utilities with renewable energy assets – Origin Energy (ORE) and AGL Energy (AGL) – along with the few pure play renewable energy offerings currently generating both revenue and profit."
https://thebull.com.au/renewable-ene...-covid-19-era/

[Snoopy]

How did all their purchasing from a clean green wind energy source go so wrong?

CEO, Mr Brett Redman, answered this question in the February 11th Half Year result conference
(p3 of transcript)

"I’d now like to look in more detail at market conditions. Spot and forward electricity prices have decreased rapidly to levels unseen since 2015. On the one hand, supply has increased as a result of new grid-scale and rooftop renewable generation combined with the deferral of major planned outages at thermal plant as a result of COVID-19. On the other hand, demand has fallen due to mild weather and COVID-19. La Nina has created an unusually cool summer, particularly in December."

The above comment strikes me as odd. It implies the thermal generation plant that was due for maintenance could not be turned off in times of excess supply.

(p3 of transcript continues)

"We expect a sustained impact to long-term wholesale energy prices reflecting policy measures to underwrite new build of electricity generation and lower technology costs, leading to expectations of increased supply.
This lower price environment will put pressure on existing generation in the market, while new generation build will increasingly rely on government contracts. Amid these conditions, in the near term we expect to see further margin compression as our historic hedge positions roll off."

It sounds like individual rooftop solar installations on a large scale are making a real difference to electricity supply. Of course solar power generation makes more sense in Australia than NZ, as production and consumption are better aligned. It is curious though, that construction of renewable power stations seems to to be driven by government, not the power industry.

(p12 of transcript)

"I want to conclude by looking at the historic relationship between EBITDA and Wholesale Electricity prices, to help put more context about our outlook beyond this year. Wholesale Electricity prices are the biggest driver of AGL’s profitability – and you can see from the chart to the right that there is a strong correlation between the price trend (both up and down) and AGL earnings. The steady rise that occurred from FY15 to FY18 translated into record profits in FY19, and the decline we’ve seen since is now translating to much lower earnings this year and into the next couple of years. Markus (Brokhof, Chief Operating Officer) has taken you through our hedge book in more detail, from which you can see that our progressive hedging approach smooths our earnings outcomes, both downside and upside."

"The chart here shows that wholesale prices are at levels last seen in 2015, hence it is likely earnings will follow."

(p21 of transcript).

"One last reflection too, on the impairments that we took around the wind contracts. An acid test is always, if you could go back in a time machine, would you have entered into those transactions. And the answer is yes. If you look at the whole of life economic outcomes that we achieve through that wind development, the results and the profits that we made in the earlier parts, the last few years where green prices and black prices have been a lot higher, in some respects what we’re seeing is a little bit of disconnect to the phasing of when costs and profits are booked versus the actual economic outcomes of projects. So do I, on behalf of the company, regret those wind projects from a decade ago? No. I think they did what they set out to do. They established a renewables and wind industry in Australia. They did provide good returns over the years to our shareholders. And I think for the whole of life, they’re not absolute knock it out of the park returns by any means, but they are respectable on the way through, so the impairment is not good, but the whole of life economic decisions there are not bad."

The question that wasn't answered, and is not company specific, is why did the Wholesale Power price collapse post 2018? The hint is that new generation is being underwritten, regardless of market price indicators.

The lesson here is, could the same fate befall Genesis Energy on the NZX, which like AGL, is primarily a fossil fuelled company with rent-a-green generation assets and concomitant contracted power pricing? The answer is, because wholesale power prices do go up and down, this is exactly what will happen to GNE. It is merely a matter of 'when'.

SNOOPY

discl: do not hold AGL or GNE

[Norwest]

Then Queensland Government, via QIC Global Infrastructure Fund's subsidary PowAR bought the 80% controlling state off AGL's in 2016 that have the other side of the contracts. AGL are actually losing money from this offtake agreement with each unit they take off PowAR, and they have to take it. Unbelievable.

Snoopy thats the first thing I looked at when investigating AGL, is to see if I could buy into QIC.

AGL Dipped into $10's today, next stop $9...

[Snoopy]

Then Queensland Government, via QIC Global Infrastructure Fund's subsidary PowAR bought the 80% controlling state off AGL's in 2016 that have the other side of the contracts. AGL are actually losing money from this offtake agreement with each unit they take off PowAR, and they have to take it. Unbelievable.

Snoopy thats the first thing I looked at when investigating AGL, is to see if I could buy into QIC.

I can't stand the suspense! Were you able to buy into QIC?

SNOOPY

[Norwest]

I can't stand the suspense! Were you able to buy into QIC?

SNOOPY

Unfortunately no, it's not publicly traded and I could not find a fund from the institutional investment firm's are that are backing them - if you could find one I would be very interested.

[Norwest]

AGL Dipped into $10's today, next stop $9...

AGL falling heavier and faster than even I thought, opened today at $9.650. Ouch.