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.
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.