AGL Energy Ltd (ASX: AGL) on Wednesday morning released profit figures for the six months ended 31 December 2014. The highlights of the announcement were:
- Revenue of $5,183 million, down 2.0%
- Statutory NPAT of $308 million, up 18.0%
- Underlying Profit of $302 million, up 24.8%
- Statutory EPS of 48.6 cents per share, up 7.8%
- Underlying EPS of 47.7 cents per share, up 14.1%
- Underlying Operating cash flow before interest & tax $879 million, down $128 million
- FY15 interim dividend of 30 cents per share (100% franked), unchanged
AGL's shares jumped nearly 3% on the news, outpacing a 1% rise in the Australian market. The company confirmed guidance for a full-year underlying profit of $575 million to $635 million, subject to normal trading conditions for the remainder of the year.
This compares with a full-year underlying profit of $562 million in the 2014 financial year, indicating that AGL doesn't expect massive growth in earnings per share and consequently the group's dividend.
Mac Gen Acquisition
CEO Michael Fraser noted that the group's performance was pleasing because earnings from the group's $1.5 billion acquisition of Macquarie Generation offset the repeal of the carbon tax financial assistance program.
Soft Conditions
The mild summer experienced in the southern states had contributed to weak overall demand, however with temperatures increasing over the last two weeks in Perth and Adelaide, some respite could be expected.
Outlook
AGL expects the second half to be approximately the same as the first with intense competition in the retail energy sector to remain a headwind.
AGL's main competitive advantage is that it is both a producer and retailer of energy, meaning that it doesn't have to go to the wholesale market to purchase energy. This is a benefit unless the wholesale price falls below AGL's cost of production, which will depress margins and the group's bargaining power.
Investors may be better off investing in companies that have a more sustainable competitive advantage.
