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Should you buy AGL Energy Ltd at this share price?

AGL Energy Ltd (ASX: AGL) has finally received a takeover offer for its old Liddell Power Station.

The ageing Liddell Power Station has been a much-discussed item in the national energy debate. AGL wants to close it when it reaches its maturity date in 2022 because it will have reached 50 years old. It would take significant investment to extend it useful life.

AGL wants to focus on cheaper forms of energy generation in the future, which aligns with its economic interests and also the public’s shift towards renewable energy.

Indeed, AGL said it has not sought to sell the Liddell Power Station because it requires it to provide energy to customers until 2022 and for repurposing as part of its NSW Generation Plan post 2022.

Today, AGL confirmed that it had received a non-binding, highly conditional indicative offer from Chow Tai Fook Enterprises and Alinta Energy Pty Ltd to acquire the power station, associated assets and the site for $250 million.

AGL said that it’s assessing the proposal and will update the market when it has more to say.

I’m not sure how much AGL would expect to get for a plant that is expected to close in a few years, but considering the company just announced a brand-new plant for $400 million, a $250 million offer for a 45ish year old plant doesn’t seem too bad.

The recent energy price increase seems to be helping AGL as its earnings are rising at the moment. However, I can’t see Australian households able to stomach many more price increases, as budgets are constrained at the moment, with the household savings rate at its lowest rate for some years.

AGL’s case isn’t being helped with the significant increase of solar panels being installed in households around the country, which reduces AGL’s potential earnings.

Foolish takeaway

I’m not sure if these two large announcements make AGL more of a buy or a sell. It will take AGL years to construct the new power plant. It also raises a question that, if it does sell Liddell, how will it make up the loss of energy production over the next few years?

Personally, I’m not a buyer of AGL shares, there is too much uncertainty in the short-term and long-term future about where it is heading. It’s currently trading at 14x FY18’s estimated earnings with a partially franked dividend yield of 4.8%.

Instead of AGL, I’d much rather buy shares of these top stocks, their growth looks more assured.

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Motley Fool contributor Tristan Harrison 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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