AGL Energy Ltd (ASX: AGL) shares have risen strongly since 5 August 2024, rising by 16%, as shown on the chart below.
After the results and recent share price performance, investors may wonder if the ASX energy share is an appealing opportunity.
The FY24 release wasn't perfect, with some downsides revealed – I'll get to those in a moment. But, there were plenty of positives too. Let's start with the good news.
Positives
AGL reported that in FY24, it increased profit significantly. Its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) were $2.2 billion (up 63%), and its underlying net profit after tax (NPAT) grew by 189% to $812 million.
There were a number of elements that helped that profit growth.
Total AGL customer services increased by 211,000 to 4.5 million. AGL said it saw more stable market conditions throughout the financial year, and the impact of higher wholesale electricity pricing from prior periods was reflected in pricing outcomes, trading, and contract positions. Margin growth also contributed to profit growth.
The ASX energy share declared a final dividend of 35 cents per share, which was 52% higher than the final dividend of FY23. The full-year dividend was 61 cents per share, an increase of 97%. That's good news for owners of AGL shares.
AGL also announced it had entered into a binding agreement to acquire Firm Power and Terrain Solar for $250 million.
Firm Power is a battery energy storage system (BESS) developer with 21 projects in development. Terrain Solar is a solar project developer with six projects in development.
The combined development pipeline is 8.1GW, with 6.1GW of grid-scale BESS projects, 1.8GW of solar projects and a 250MW onshore wind project in NSW.
The AGL managing director and CEO Damian Nicks said:
We believe this high-quality development pipeline presents strong optionality for AGL, focusing on firming capacity which will be required to firm new renewable generation for our customer base and portfolio as thermal baseload generation exits the NEM.
Negatives
The company's FY25 guidance was not very exciting.
AGL guided that underlying EBITDA is expected to be between $1.87 billion and $2.17 billion, while underlying NPAT could be between $530 million and $730 million. This means that AGL's underlying profit is predicted to drop by at least 10%.
This expected decrease in profit is due to a few different factors.
First, there are lower wholesale electricity prices resetting through contract positions and the roll-off of heightened volatility from market interventions in 2022.
Second, consumer margin compression is expected after a period of heightened market activity and lower wholesale prices.
Third, AGL is expecting broadly flat operating expenses, with productivity and business optimisation benefits "broadly offsetting" the ongoing funding of strategic growth initiatives and inflationary impacts.
Finally, increased depreciation and amortisation are expected due to continued investment.
Foolish takeaway
I think AGL shares have a compelling future, particularly with the business investing in energy storage. This will help unlock a renewable energy future – we need energy at night when the sun isn't shining.
However, the higher the AGL share price goes, the less compelling it is. Seeing as I already own shares, I'm not looking to buy more at this price. But if I didn't own any, I'd be happy to buy a starting position for the long term.
