The AGL Energy Ltd (ASX: AGL) share price has delivered excellent returns for shareholders in 2023 so far, rising by 40%. The dividend payments are a useful bonus to the overall return.
After such a strong rise from a utility business, investors may be wondering whether the ASX energy share is still an opportunity.
I've previously been bullish about the opportunity of AGL shares, so let's look at what the business indicated about the future.
Earnings and outlook recap
The company did report a statutory loss after tax of $1.26 billion relating to impairment charges due to closing its thermal coal power plants earlier than initially planned, and a negative movement in the fair value of financial instruments.
The underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew 12% to $1.36 billion, while the underlying net profit after tax (NPAT) increased by 25% to $281 million.
Its underlying profit improved thanks to a significant improvement in plant availability as the year progressed, as well as what the company described as a "well risk managed gas portfolio and customer business."
AGL decided to pay a final dividend of 23 cents per share, bringing the full-year dividend to 31 cents per share.
Can the AGL share price keep rising?
Over the long term, share prices usually follow the direction of profit generation. AGL had already given profit guidance for FY24 before the date of the FY23 result, so it wasn't a surprise, but the numbers are looking positive for more profit growth in FY24.
AGL has guided that it's going to generate underlying EBITDA of between $1.875 billion to $2.175 billion in FY24.
More impressively, underlying net profit could be between $580 million to $780 million. That could mean profit growth of as much as 178%.
There are two key reasons why AGL's profit could jump so much.
First, it's expecting sustained periods of higher wholesale electricity pricing, which are being "reflected in pricing outcomes and reset through contract positions."
Second, AGL is also expecting improved plant availability and flexibility of its asset fleet, including the start of operations for the batteries at Torrens Island and Broken Hill. It's also expecting forced outages seen in FY23 not to repeat in FY24.
Using those AGL profit projections, the AGL share price is valued at between 10 times to 13 times FY24's underlying net profit.
It also said that "wholesale electricity forward curves currently observable in the market for FY25 are broadly in line with FY24 pricing levels, noting that forward curves are subject to market conditions and can change."
The next two financial years could show strong profit generation by the company. Due to that, I think the AGL share price and dividend are capable of rising in the coming years. But, its renewable energy plans will take up some capital, so I'm not expecting a very high dividend payout ratio.
