The AGL Energy Ltd (ASX: AGL) share price could offer a lot of upside, according to one leading broker.
AGL shares have dropped 9% over the last month and 36% over the past six months.
The broker certainly isn't expecting all of that drop to be recovered. But with the share price low, the broker is predicting a strong market performance from AGL over the next year.
AGL share price target
A price target is where the broker sees the share price trading in 12 months from the time of the broker note.
The broker that is currently feeling very optimistic about the AGL share price is Ord Minnett. Its price target on AGL is $7.55. That's a potential increase of around 45% if the broker is right.
Ord Minnett thinks that AGL shares have gone low enough that the retail division alone makes the business attractive, even if the market isn't excited about Accel Energy as an energy generator with coal and gas energy assets.
The broker also notes the recent deal activity for Meridian Energy Ltd's (ASX: MEZ) Australian business for a total of $729 million. Shell Energy is going to own the retail business, Powershop Australia.
Ord Minnett thinks that the retail division of AGL could be worth more than $10 per share based on the Meridian Energy deal.
Plan to de-merge
AGL has a plan to create two separately listed energy companies, this could have a growing influence on the AGL share price with a demerger targeted for the middle of 2022.
AGL Australia will be Australia's largest multi-product retailer. It will be carbon neutral for scope 1 and 2 emissions, with a clear pathway to full carbon neutrality for electricity supply. It is connected to 30% of Australian households with 4.5 million services. AGL Australia plans to invest in flexible and decentralised energy trading, storage and supply services.
Meanwhile, Accel Energy would be Australia's largest electricity generator. It supplies a fifth of the national electricity market with an expected 33.5TWh of electricity generation. It has decarbonisation target with 16,000 hectares of land for energy hubs. It has a 1GW wind farm portfolio and 1600MW wind development portfolio.
What are the benefits?
The broker thinks there will be more investor interest in the separated businesses, which could be a boost for the AGL share price.
AGL itself says that the demerger will enable each business to set and execute its own strategy at a time of great change in the energy industry.
Accel Energy plans to invest in transition energy assets.
Management believes that a demerger would also allow investors to have greater transparency in valuing each business and choosing the sort of exposure they wish to have.
The energy business said:
The expectations surrounding climate action have increased materially and this is one of the key drivers for AGL's consideration to pursue a demerger. AGL sees the demerger as a mechanism to allow both leading businesses to focus on their different but important roles within Australia's energy transition to a low carbon future.
