Leading Australian energy company, AGL Energy Ltd (ASX: AGL), today announced it has entered into a supply agreement with Esso Australia Resources Ltd and a BHP Billiton Limited (ASX: BHP) subsidiary.
With Australian energy prices set to continue rising in the short to medium term, AGL said it has agreed to purchase up to 198 petajoules (PJ) of conventional natural gas from Bass Strait over a period of three years.
The contract will commence in January 2018 and will be linked to oil prices. The gas supply agreement will run until 2020 and allow AGL to deliver competitive prices to its 1.5 million residential and small business gas customers.
It'll also enable the company "to release between 30 and 50 PJ per year for sale into the high value Queensland market between FY18 and FY20," AGL said in an ASX announcement.
Source: AGL Energy Media Release.
Should you buy AGL Energy shares?
Over the next three years, AGL Energy expects to pay out a rising stream of dividends (it currently yields 4.3% fully franked). Further, with energy prices expected to soar in the years ahead, analysts are forecasting robust earnings per share growth in the medium term.
However, with AGL shares trading at around 16x last year's profits, I think M2 Group Ltd (ASX: MTU) (which is currently pushing into retail electricity and other utilities) and ERM Power Ltd (ASX: EPW), which has a higher yield and cheaper share price – could be better alternatives.
