The AGL Energy Ltd (ASX: AGL) share price hit a record high of $25.53 in trade in Monday after the company recently reported a half-year underlying profit of $389 million, up 4% on the prior corresponding half.
The electricity, gas and renewable energy retailer also forecast that its full year profit will be at the upper end of prior guidance between $720 million to $800 million as prices in the electricity and gas retailing sector rise.
The company managed to lift its half-year dividend an impressive 28% to 41 cents per share and it's the company's defensive earnings streams and gradually rising dividends that are likely supporting the share price.
Analysts are expecting a final dividend around 45 cents per share to take the full year total to 86 cents per share, which would mean the group yields around 3.4% franked to 80% on the basis of its most recent interim dividend payment.
The group also delivered 57.7 cents in adjusted earnings per share (EPS) for the half year with analysts' estimates for total EPS of $1.18 over the full year. This places the group on around 21.5x forward earnings which looks on the expensive side given it's likely to deliver no more than single-digit underlying growth in the current financial year.
The group retains a decent outlook based on the essential nature of its products and large market share, although it is not immune from price-based competition from the likes of Vocus Group Ltd (ASX: VOC) operated Dodo Energy that is attempting to bundle consumers' internet, mobile, insurance and home energy needs on a cost effective basis.
Vocus's energy business is growing at rates above 20% in terms of subscribers and revenues while it trades on just 13x estimated forward earnings with a similar yield to AGL and retains the ability to aggressively grow market share to the cost of bigger players like AGL or Origin Energy Ltd (ASX: ORG).
As a growth or income-oriented investor then I would want a cheaper share price for AGL before considering it an investment opportunity. It's a strong company, but for now the valuation looks a bit rich in my opinion.
