Motley Fool Australia

4 things that could make AGL Energy Ltd shares attractive now

One of the leading electricity generators and service providers, AGL Energy Ltd (ASX: AGK), could be in a good spot for investors. Following a strong year of earnings growth, its half year result was disappointing, sending its share price sideways. It has been flat over the past three months while the S&P ASX All Ordinaries Index (ASX: ^AORD) gained about 1.8%.

This short-term weakness is happening around other factors that could propel revenue and earnings in the mid-term. Value investors look for potential buying opportunities of stable, growing companies having temporary setbacks. The market may be forward-looking, but it can equally be short-sighted.

Here are four things that investors need to know about AGL Energy and what could happen from here.

1) Low end of historic PE averages

Its price/earnings ratio is 14.9, a little lower than its sector average, but more importantly it’s toward the lower end of its past average PE ratio range. The lower share price makes its dividend yield an attractive 4.4% fully franked.

2) Consolidating market position (APG acquisition)

The company acquired APG (Australian Power and Gas Company) in October 2013, so the full benefits of the acquisition to revenue and earnings were not complete in the first half. AGL Energy expects improved financial performance in the second half, helping full year results. Thanks to the acquisition, the company’s customer base is now 3.85 million.

3) Potential acquisitions

NSW state government wants to sell its Macquarie Generation company assets, which generates about 13% of the electricity used in the eastern states and 40% in NSW. AGL Energy’s bid was accepted by the state, but the ACCC has blocked the sale on competition grounds. If the company can win an appeal of the decision, it would go far for future revenue and earnings growth. Watch for further developments.

4)  AGL’s LNG gas projects

The company has four LNG gas projects in Queensland and NSW using coal seam gas technology to unlock the resource. It estimates that by 2018 these gas projects will be supplying about 20% of NSW’s energy needs.

Due to the LNG export business starting up over the next twelve months, gas prices may rise greatly because it will be priced in relation to international gas prices. Having more of its own supply will help manage future costs and surplus gas could be sold into the foreign market.

Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.

*Returns as of 6/8/2020

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

Related Articles...