Citigroup backs energy player AGL Energy Ltd for earnings growth

A Citigroup broker has forecast earnings growth for integrated energy provider AGL Energy Ltd (ASX: AGL) between FY17 and FY21, but declining retail gross margins by the second half of FY19.

AGL Energy opened today at $21.50 down from yesterday’s close of $21.57 and is $21.22 at the time of writing after 12-months of downward share price movement with a small correction noted after the release of strong half-year results in early February.

The Citi broker notes AGL Energy has now matched Alinta’s headline discount of -28% in Queensland as the company tries to compete on price to protect market share.

The broker forecast earnings growth rates for FY17 to FY21 would rise from 6.5% to 9.4%, but expects retail gross margins to decline by 300 basis points to about 10% by the second half of FY19.

AGL reported a statutory profit rise of 91% to $622 million for the half-year ended December 31, 2017, with underlying profit up 27% to $493 million and dividends up 32% to 54c per share and 80% franking payable on March 26.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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