AGL shares struggled in FY24. Will FY25 be different?

Things could be looking brighter.

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AGL Energy Ltd (ASX: AGL) shares faced a fairly turbulent run in FY24, only just finishing the year out of the red.

In the 12 months to June 28 2024, the energy stock gained just 0.18%, closing the year at $10.83 per share.

The saving grace came in February, when the broader resources and energy sectors began to rally, supported by strengthening commodity prices.

But will FY25 bring a change in fortune for AGL shares? Here's a look at the year in review and what the experts say about FY25.

AGL shares FY24 review

AGL shares came back stronger in the second half of the financial year following a series of company-specific announcements.

The company boosted its FY24 earnings guidance in May. According to my colleague James, management now expects its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to be between $2.1 and $2.2 billion.

This is above the previously forecasted range of $2 to $2.17 billion. If AGL hits this target range, it represents a 56% to 61.5% increase compared to the company's FY23 EBITDA.

Additionally, AGL anticipates its underlying net profit after tax (NPAT) to be between $760 million and $810 million, a 2.9-fold increase over the FY23 result.

In June, the company announced a $150 million deal to partner with UK-based Kaluza to digitise and simplify energy billing as part of its Retail Transformation Program (RTP). Once settled, AGL will own 20% of Kaluza.

As my colleague Bernd reported, the RTP initiative aimed to reduce operating expenses and capital expenditure, with the benefits expected to be realised in FY28.

However, the program entails significant upfront costs, estimated at $300 million over four years, which may or may not pressure the AGL share price in the short term.

Investment potential

Fund managers have recently highlighted AGL's investment potential. L1 Capital, in its recent investor presentation, said AGL was well-positioned to benefit from surging electricity demand.

L1 said AGL was the lowest-cost baseload generator in Victoria and New South Wales. With rising electricity demand stemming from data centres, electric vehicles, and artificial intelligence (AI), the energy giant could benefit from these tailwinds.

The fund expects AGL to generate strong free cash flows, which "can fund high dividends and substantial investment in transition in areas such as batteries with solid returns".

Valued at an enterprise value to EBITDA ratio (EV/EBITDA) of 4.5 times, AGL shares are "well below historical range" of around 6 times, according to L1. This ratio is similar to the price-to-earnings ratio (P/E).

Future outlook for AGL shares

The energy company is currently trading at $10.52 per share, with a trailing dividend yield of 4.64% and a P/E ratio of 18.4 times.

Despite the challenges faced in FY24, AGL's strategic initiatives and upgraded earnings guidance could offer a positive outlook for FY25. As a reminder, always consider the risks involved and conduct your own due diligence.

Motley Fool contributor Zach Bristow 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.

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