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AGL share price surges 2% on renewables boost

The AGL Energy Ltd (ASX: AGL) share price has surged 2% higher this morning after a new funding boost for renewable energy projects in Australia.

The Australian Renewable Energy Agency (ARENA) announced a $10 million boost for renewable energy pilot programs including solar and battery storage, boosting the broader S&P/ASX200 Energy Index (ASX: XEJ) 0.97% higher to 10,975.7 points. Fellow energy companies Beach Energy Ltd (ASX: BPT) and Origin Energy Ltd (ASX: ORG) are also up over 2% on the news, with the S&P/ASX200 Index (ASX: XJO) up 0.4% to 6,088.1 points at midday.

AGL, Australia’s biggest energy company, had a bumper full-year earnings report with profit increasing 194% from FY17 numbers as higher wholesale energy costs and increased volumes continued to pay dividends for the stock.

The AGL share price is up 7% year-to-date on the back of the result, but the biggest question mark hanging over the retailer is its long-running political and regulatory battles. With consumer electricity prices at all-time highs following steadily rising prices since 2015, AGL has become somewhat of a political football ahead of the May Federal election.

The Federal Government took aim at the stock last week, saying the company’s profits are “unacceptable” while AGL returned fire, asking for some surety around national energy policy to facilitate further investment in the sector going forward.

Foolish Takeaway

I like AGL as a big-name, countercyclical stock within the ASX. While the company currently faces significant regulatory risk from the ACCC and the Federal Government with pressure to bring down prices (and hence profit margins), a Labor election win could see more investment in renewables and possible subsidies.

The AGL share price currently trades on a P/E multiple of ~11x, well below the ASX200 average of ~16x, and offers an 80%-franked 5.53% yield for those Fools looking for income.

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Motley Fool contributor Lachlan Hall does not own shares in any of the companies 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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