AGL (ASX:AGL) share price slumps after demerger, guidance update

AGL shares start today’s session in the red after two major announcements this morning.

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AGL Energy Ltd (ASX: AGL) share price has sunk 4.5% in morning trade, despite announcing that it expects earnings for FY21 to remain within previously provided ranges.

The earnings announcement accompanied the company’s confirmation today of its intent to demerge and create 2 separate ASX listings.

The company also updated its earnings outlook for FY22, indicating it expects a downturn in forward earnings estimates.

What did AGL say?

For FY21, the company expects earnings before interest, tax, depreciation and amortisation (EBITDA) to lie within the lower half of the previous range of $1.58 billion to $1.84 billion.

AGL also sees underlying net profit after tax (NPAT) at the middle of the $500 million to $580 million range previously outlined to the market.

Of this NPAT figure, approximately $90 million is comprised of insurance proceeds relating to an outage at the Loy Yang A power station in 2019, consistent with AGL’s previous guidance on this matter.

According to the announcement from AGL this morning, a further $25 million of NPAT “includes a net benefit from a change in accounting policy that reduces historically capitalised costs relating to software as a service”.

What about AGL’s dividend?

In the earnings update AGL also announced it will be terminating its special dividend program. According to the release, AGL “no longer intends to pay out an additional 25% of Underlying Profit after tax for the FY21 final dividend or in FY22”.

The decision behind the cut was to “preserve approximately $400 million to $500 million in cash within AGL Energy prior to execution of the demerger.”

Moreover, the company also indicated its intention underwrite the company’s dividend reinvestment plan (DRIP) during the demerger planning period.

The DRIP underwriting program will enable shareholders to “elect either to receive a cash dividend or
participate in the DRIP by subscribing to receive AGL Energy shares in lieu of cash payment” AGL said.

What about FY22?

With respect to the coming financial year, AGL expects “material step-down in earnings as a result of the lower wholesale electricity prices of the last 2 years now being realised.”

The company did not provide any specific range for FY22 in this morning’s announcement.

AGL will be holding a conference call this morning to discuss the earnings update in addition to the demerger.

AGL share price snapshot

At the time of writing, AGL has a market capitalisation of $5.6 billion and trades at a price-to-earnings-ratio (P/E) of 7.05.

AGL shares are 3% in the red over the past 5 days, however are 8% up over the past 1 month.

The AGL share price is 27% down so far this year.

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