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AGL Energy sparks 24.1% profit growth

Australia’s largest energy retailer AGL Energy (ASX: AGK) has announced impressive results for the financial year ended 30 June 2013. The results were underpinned by strong performances from its core retail and merchant businesses coupled with the first full year contribution from the company’s acquisition of the Loy Yang power station.

  • Revenue up 30.3% to $9.7 billion
  • Underlying net profit after tax (NPAT) up 24.1% to $598.3 million
  • Underlying earnings per share up 8.8% to $1.088
  • Fully franked dividends up 3.3% to 63 cents per share
  • Adjusted EBIT/Funds Employed up 1.3% to 12.9%

The boost to NPAT was helped by higher electricity gross margins thanks to regulatory and contract price increases as well as NSW customer growth, however lower average consumption partially offset this. Higher gas gross margins due to regulatory and contract price increases and higher Victorian volumes also helped to boost NPAT with higher wholesale electricity gross margin from a Loy Yang also helping.

With respect to the Loy Yang acquisition, AGL Managing Director Mr Michael Fraser noted that he was “delighted with the integration of Loy Yang into our business. The power station has performed reliably and its earnings contribution has met the expectations we set.”

On the retail side, total bad debt expense decreased and customer satisfaction levels grew. Despite increased retail competition AGL managed to grow its net customer levels by 43,459 to 3.5 million. Perhaps more importantly, assuming the acquisition of Australian Power & Gas (ASX: APK) occurs later this year, AGL should add around 350,000 customers to its business in the coming months.

One of the few disappointments in the results was the need to recognise an impairment to the value of $344 million against the company’s NSW gas projects. AGL was forced to take this impairment based on expectations around proposed government changes regarding the exploration and development of coal seam gas within the state.

Foolish takeaway

With the share price hovering around the $15 mark, based on AGL’s underlying earnings per share the company is trading on a price-to-earnings ratio of 13.8 times. While the company will not provide formal earnings guidance until its Annual General Meeting in late October — at which time it will be easier for the market to form a view regarding AGL’s growth outlook — the stock would currently not appear to be expensive.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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