Why is the AGL share price still falling after its 12% November nosedive?

AGL is going through a low energy period. What's going on?

| More on:
A man looking at his laptop and thinking.

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

The AGL Energy Limited (ASX: AGL) share price suffered a 12% decline in November, significantly underperforming the S&P/ASX 200 Index (ASX: XJO) which rose by 4.5%. This means that the ASX energy share underperformed by more than 16%.

Disappointingly, the AGL share price has continued to fall in December. In the month to date, it has dropped 4% and since the end of October 2023, the company has seen a decline of 16%.

As a reminder, the company has two main segments – retailing to customers, and energy generation.

What's going wrong for AGL shares?

The company is currently experiencing a boost to its underlying net profit after tax (NPAT) thanks to wholesale prices that have significantly increased. AGL has forecast that FY24 underlying NPAT could at least double thanks to those higher wholesale prices (being locked-in) and improved availability of its energy generation.

That's the good news. But the market normally focuses on the long-term, and the outlook isn't looking as good as it was before.

As the ABC recently reported, a warm winter and increasing numbers of rooftop solar have seen wholesale electricity prices decline.

AGL is currently benefiting from the prior, higher wholesale prices but as that rolls off it could mean reduced profitability compared to FY24, which may be why AGL shares are drifting lower.

The ABC reported in October that in the prior three months, wholesale power prices in the national grid were less than half of what they were 12 months before. Prices remain significantly lower than they were before.

It can reportedly take roughly a year for wholesale energy prices to lead to lower retail prices. This also means it will take a while for lower profit to be reflected in AGL's financials, but it is on the horizon if it stays this way.

There is a higher chance of a hot summer due to El Nino, which could lead to higher prices, though the increasing presence of solar and cheaper coal may offset this.

AGL itself faces a path of large-scale investment into renewable energy generation and energy storage in the years ahead. That will take a lot of capital.

Unless wholesale energy prices turn around, it becomes more likely that AGL's medium-term won't be as strong as previously forecast.

Is there a silver lining for the ASX energy share?

Broker UBS thinks there are some positives ahead for wholesale electricity prices because of the potential exit of some/all of the Origin Energy Ltd (ASX: ORG) Eraring Power Station capacity in mid-2025 and lower generation availability from competitors.

UBS points out that the last time southern weather patterns transitioned from La Nina to El Nino, wholesale electricity prices lifted 30% year over year in a 12-month period.

AGL share price snapshot

Since the start of 2023, the AGL share price has climbed by 12.50%.

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

A coal miner wearing a red hard hat holds a piece of coal up and gives the thumbs up sign in his other hand
Dividend Investing

12% dividend yield! 1 ASX income stock I'd buy today

Investors are right to be suspicious of high returns from dividends. But on the odd occasion you can find something…

Read more »

a woman drawing image on wall of big fish about to eat a small fish
Mergers & Acquisitions

Genex share price jumps 38% on $381 million takeover bid

This renewable energy company could be leaving the ASX boards soon.

Read more »

A man wearing only boardshorts stretches back on a deck chair with his arms behind his head and a hat pulled down over his face amid an idyllic beach background.
Dividend Investing

How are these passive income investors still earning a 14% dividend yield on Woodside shares?

Woodside reduced its final dividend payout, but some investors are still making hay.

Read more »

Woman refuelling the gas tank at fuel pump, symbolising the Ampol share price.
Energy Shares

Why is the Ampol share price tumbling 5% on Friday?

The Ampol share price is taking a big fall on Friday.

Read more »

A woman wearing a hard hat holds two sparking wires together as energy surges between them. representing the rising Li-S Energy share price today
Energy Shares

2 ASX energy shares to supercharge your returns

Analysts are tipping big returns from these energy stocks.

Read more »

Two workers at an oil rig discuss operations.
Earnings Results

2 ASX energy shares going gangbusters on today's earnings results

The ASX energy shares are drawing investor interest today after releasing their half-year earnings results.

Read more »

Red buy button on an apple keyboard with a finger on it representing asx tech shares to buy today
Energy Shares

Bell Potter just upgraded this ASX uranium stock

The broker believes recent weakness has created a buying opportunity.

Read more »

An oil worker in front of a pumpjack using a tablet PC.
Dividend Investing

Here's everything you need to know about the Woodside dividend

This energy giant is rewarding shareholders with a big dividend again this year.

Read more »