While many energy stocks such as Woodside Petroleum Limited (ASX: WPL) have been punished by investors in response to the oil price crash there are other companies which are much less exposed to the vagaries of the oil price but that still do have oil and gas exposure.
AGL Energy Ltd (ASX: AGL) is a prime example…
The company is a major electricity and gas utility and energy retailer and while it does have some oil and gas exposure its primary source of energy for power generation is coal along with a growing range of renewable sources, particularly wind power.
In fact, AGL is Australia's largest listed owner, operator and developer of renewable energy generation – having committed around $2 billion to building hydro, wind and solar-powered generation assets. These assets once completed will in total produce over 1,900 megawatts of renewable capacity.
AGL also owns gas assets to provide for a share of the group's expected household, commercial and industrial demand for gas. However, in what appears a timely move, in July the company announced it would focus on core gas projects and divest non-core and underperforming gas assets and activities. Strategic decisions by AGL's management over the years – particularly the decision to not follow the herd into the liquefied natural gas (LNG) space – means that unlike some of its listed peers, the group is in a much more commanding position during the current oil price rout.
AGL produced an impressive full year set of results when it reported in August. Sales grew 2.2% to $10.7 billion, underlying profit jumped 12.1% to $630 million. It should be noted however that on an underlying earnings per share basis, however, AGL recorded a fall of 0.5% to 96.4 cents per share.
AGL has an impressive long-term track record of delivering higher dividends to shareholders. This trend continued in 2015 with the total dividend increased by one cent to 64 cents per share.
A Safe Bet
The slump in the oil price has already helped to set off some early consolidation across the wider energy and utility sectors.
DUET Group (ASX: DUE) recently made a play for Energy Developments Limited (ASX: ENE) showing that some firms have an appetite to acquire peers during these tumultuous times. Another stock worth keeping an eye on is APA Group (ASX: APA) which may find itself in the position of being able to pick up high-quality assets from distressed sellers at appealing prices.
Whether AGL finds itself involved with merger and acquisition (M&A) activity remains to be seen however any weakness in its share price could be an opportunity for long-term investors. AGL's share price has risen nearly 16% in the past year which is significantly better than the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) which is down around 8% and also much better than oil and gas producers which have been caught out by the tumbling oil price.
With AGL's share price finishing last week at $16.10, the stock is trading on a trailing price-to-earnings ratio and dividend yield of 16.7x and 4% respectively.
