Are AGL (ASX:AGL) shares worth buying prior to the planned demerger?

AGL shares have been through a lot. Could they be a buy today?

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Key points
  • AGL Energy shares have had a dramatic 12 months
  • The company has faced takeover offers and a declining share price, not to mention a divisive demerger plan
  • But let's take a look at what one broker is saying about buying AGL today...

AGL Energy Limited (ASX: AGL) shares have faced a tumultuous time over the past 12 months. Not only has the company been sensationally sought after by one of Australia's most prominent tech investors in Mike Cannon-Brookes. But AGL is also grappling with a divisive plan to demerge the company into two separate entities. And there's the matter of the AGL share price.

AGL shares have lost close to 24% of their value over the past 12 months. Sure, the company is up a pleasing 40% or so since hitting a new multi-decade low of $5.10 back in November. But that wouldn't exactly be of too much comfort for long-term investors. They have had to watch AGL shares slide by more than 72% over the past five years.

But let's circle back to AGL's demerger plans, since the brief Cannon-Brookes chapter of the company's history seems to be over (at least for now).

AGL plans to split the company in half in June this year. One half will house AGL's legacy generation assets, most of which consist of coal-fired power plants, and be renamed 'Accel Energy'. The 'new AGL' will house the company's retail business. This will attempt to insulate investors from some of the ethical and environmental concerns of owning some of the largest greenhouse gas-emitting infrastructure in the country.

An ASX investor in a business shirt and tie looks at his computer screen and scratches his head.

Image source: Getty Images

Could AGL shares be a buy today?

Some demergers in the past have proved relatively successful in hindsight. Take the Coles Group Ltd (ASX: COL) split from Wesfarmers Ltd (ASX: WES) in late 2018. When Coles shares were spun off, they were done so at under $13 a share. Today, Coles is worth close to $18 a share on recent pricing. Wesfarmers has gone on to record major share price appreciation since the split as well. So that has given long-term investors a two-pronged win.

So could the same happen with AGL shares?

Well, at least one broker doesn't think so. As my Fool colleague James covered last week, broker Morgans isn't too enthused about the prospect of owning AGL right now. it is instead urging investors to consider AGL's rival Origin Energy Ltd (ASX: ORG).

Here's some of what the broker had to say:

AGL remains a difficult investment proposition ahead of its demerger with its component parts likely to attract investors who have environmental priorities that are at polar opposites… Our outlook for commodity prices suggests ORG could sustain strong dividends in the medium term. We maintain our ADD rating and see 10% upside to our valuation on today's closing price and potential dividend yield of 5%.

So not exactly a vote of confidence for AGL right now. No doubt shareholders will be hoping a different scenario plays out. But we shall have to wait and see.

At the current AGL share price, this ASX energy utility share has a market capitalisation of $4.76 billion, with a trailing dividend yield of 6.92%.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended COLESGROUP DEF SET and Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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