Cannon-Brookes warns AGL dividends at risk from demerger

AGL’s dividends could be hit from the planned demerger, according to Mike Cannon-Brookes.

| More on:
Two hands raised against eachother with lightning flashes between them, indicating and energy clash between fossil fuels and renewables

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Billionaire Mike Cannon-Brookes is warning shareholders that dividends will fall if AGL demerges
  • Mr Cannon-Brookes also points out the problems that AGL is seeing and could see with coal
  • AGL’s leadership continue to believe a demerger is the best plan for the company and shareholders

This week may prove critical for the planned demerger of AGL Energy Ltd (ASX: AGL) as billionaire investor Mike Cannon Brookes warns that AGL dividends could be at risk.

According to reporting by The Australian, both AGL leadership and Cannon-Brookes will be meeting with the company’s biggest shareholders.

AGL wants to push ahead with a demerger of the company into a retailing business (AGL) and energy generation company (called Accel). However, Cannon-Brookes says that demerging would be a bad idea.

What are Cannon Brookes’ points on AGL?

The Australian reported that Cannon Brookes’ Grok Ventures would tell major shareholders that dividends would be “severely impacted” because of the “financial constraints” that Accel would face.

Accel could suffer “coal outages” and “major offtake contracts expiring in 2028”, according to Grok Ventures, adding the AGL board’s value assumptions were “severely misguided”.

Grok Ventures also would point out to shareholders its belief that exiting coal quicker-than-planned would open more economic opportunities with a green energy business, the newspaper reported.

Independent expert views

Independent expert Grant Samuel also reportedly concluded that shareholders could receive lower total dividends from two separate businesses than under the current combined structure because of “Accel’s debt amortisation profile”, The Australian reported.

Lower dividends weren’t the only thing that Samuel noted. There were “non-trivial” disadvantages, costs and risks from the demerger. However, the expert concluded that shareholders would be better off with two separate businesses.

How big are AGL dividends expected to be?

Analysts have varied expectations for the company.

Commsec numbers suggest that AGL could pay an annual dividend of 26 cents in FY22, 40 cents per share in FY23 and 60 cents per share in FY24. That would translate into dividend yields of 3.2% in FY22, 4.8% in FY23 and 7.25% in FY23.

In the FY22 half-year result, AGL reported a statutory net profit after tax (NPAT) of $555 million. The underlying net profit after tax was down 41% to $194 million. It decided to pay an interim dividend of 16 cents per share.

It’s expecting to generate a net profit after tax of between $260 million to $340 million for FY22.

Failed takeover

A couple of months ago, the AGL board rejected a revised indication of interest from a consortium including Brookfield and Grok Ventures. That bid was $8.25 per share, which was a premium of 15.2% to the prior closing price.

However, the board said that the bid ignored the opportunity of the proposed demerger to deliver future value. It also said that it ignored business momentum and improvements in the forward wholesale prices.

AGL said the demerger would create “two industry-leading companies with distinct value propositions. It will allow each business to be valued separately and more positively by the market on the basis of their own specific business fundamentals.”

AGL chair Peter Botten added that there would be defined, distinct dividend policies and capital structures for each company that would “support both future growth and appropriate returns to shareholders, as both organisations pursue their commitment to responsibly decarbonise without impacting energy reliability and affordability”.

AGL share price snapshot

The AGL share price is trading at $8.36 at the time of writing. Shares in the company are down 5% over the past 12 months but have lifted 36% since the start of 2022.

Motley Fool contributor Tristan Harrison 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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Energy Shares

oil and gas worker checks phone on site in front of oil and gas equipment
Energy Shares

Santos shares go cold despite energy regulator outlining ‘crucial’ role gas will play for decades

The Australian Energy Market Operator has released a 30-year plan for investment to enable the transition to renewables.

Read more »

An oil worker assesses productivity at an oil rig
Energy Shares

How did ASX energy shares perform in June?

This month has seen some ASX energy giants gain while others tumbled.

Read more »

A surprised man sits at his desk in his study staring at his computer screen with his hands up while he watched the Sezzle share price fall despite the company accepting a takeover offer from Zip Co
Energy Shares

Why is the Woodside share price sliding today?

Oil prices appear to be weighing on ASX energy shares today.

Read more »

busy trader on the phone in front of board depicting asx share price risers and fallers
Energy Shares

AGL share price lifts as Brookfield caught buying

It's been a rollercoaster day so far for the ASX energy giant. Here's why.

Read more »

a judge sitting in a blurred background reaches forward to strike his gavel on the strikeplate on his judge's bench.
Energy Shares

Origin share price shrugs off record $17 million fine from Federal Court

Investors in the energy company didn't appear fazed by the news.

Read more »

A wide-smiling businessman in suit and tie rips open his shirt to reveal a green t-shirt underneath
Energy Shares

Hazer shares climb 8% amid CEO appointment

The hydrogen producer's shares are off to a flying start on Wednesday.

Read more »

Oil worker drilling on the oil field
Energy Shares

Why are ASX 200 energy shares surging today?

Energy shares are extending their rally today amid a global uptick in energy commodity prices.

Read more »

a gas worker with hard hat and high visibility vest stands cross armed and smiling in front of an elaborate steel structured gas plant.
Energy Shares

Own Santos shares? This analyst expects gas prices to grow through to 2025

Could rising gas prices help the Santos share price?

Read more »