Infratil share price surges while AGL plummets after Perth Energy sale

The Infratil Ltd (ASX: IFT) share price surged while the AGL Energy Ltd (ASX: AGL) share price plummeted after the two energy companies agreed to the sale of Perth Energy to AGL.

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The Infratil Ltd (ASX: IFT) share price surged yesterday, while the AGL Energy Ltd (ASX: AGL) share price plummeted after the two energy companies agreed to the sale of Perth Energy to AGL.

The sale announcement also came at the same time as the release of AGL's full-year results yesterday, which saw the energy company's share price drop more than 5% after its guidance for FY20 disappointed investors.

What did Infratil announce yesterday?

According to yesterday's announcement, the sale agreement is subject to satisfaction of a limited number of conditions precedent, with completion targeted before 30 September 2019.

lnfratil is the 80% shareholder in Perth Energy, which the company purchased in 2007 and subsequently announced a strategic review of its investment in October 2018.

Perth Energy is Western Australia's leading independent energy retailer, marketing electricity and gas to small and medium-sized enterprises and commercial and industrial users.

At completion, lnfratil said that it expects to receive cash proceeds of approximately $55 million for its 80% shareholding, with final proceeds adjusted for normal working capital and net debt adjustments.

As at 31 March 2019, lnfratil's book value for Perth Energy was NZ$89.3 million (A$85.2 million) with the result that completion of the sale is currently expected to give rise to a loss on disposal of NZ$33.0 million (A$31.5 million).

lnfratil said it may receive further sale proceeds of up to A$14.9 million in cash within three years, contingent on financial outcomes under a material contract and the tax treatment of certain penalty refunds which Perth Energy may become entitled to claim.

The sale completion will also release lnfratil from its credit support of Perth Energy, which as at 31 March 2019 amounted to A$64.7 million.

Morrison & Co executive and Perth Energy chairperson, Roger Crawford, said:

We are disappointed to realise a loss on sale but pleased with the turnaround in Perth Energy over the last two years, driven by a restructuring of wholesale supply arrangements, the closing out of unprofitable legacy customer contracts, and a revitalised sales team.

He added:

This sale enables the Perth Energy business to continue to grow under AGL's ownership and allows lnfratil to focus its investments on established platforms targeting renewable energy, data and connectivity, aged care, and airports.

Foolish takeaway

Given yesterday's announcement, I wasn't surprised to see the Infratil share price surged 4.26% higher while the AGL share price plummeted lower throughout the day.

While Infratil has booked a loss on sale, which won't please investors, the offloading off Perth Energy and releasing itself from the significant credit support of the company in the process may provide long-term benefit to shareholders.

For AGL, the acquisition may allow it to realise some synergies and pick up 80% of Perth Energy on the cheap, but I think investors were worried about the credit liability and an under-performing asset on its books, alongside the disappointment over its FY20 guidance. 

Motley Fool contributor Kenneth Hall 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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