AGL firing once more

This, together with mounting interest about the development of the PNG-Queensland gas pipeline, has put a positive sheen on AGL, one of the project's two developers should it go ahead. So far, two Queensland utilities, Ergon and Energex, have signed gas purchase agreements. Who said utilities are boring?

Running on gas

On 26 August AGL reported a healthy 27% rise in net profit before abnormal items but after tax to $221.4m, an increase fuelled by $650m worth of acquisitions. The company spent up big to buy energy businesses in Western Australia and New Zealand, including an 88% interest in the Goldfields Gas Transmission pipeline, which carries gas from the North West Shelf to Kalgoorlie. Some see these purchases as particularly daring, reckless even, but given the present resources downturn, they should pay big dividends when the mining industry recovers.

AGL's core business of gas transmission in NSW and the ACT (known as AGL Gas Networks) had a great year too. It carried only 0.3% more gas, but was able to push up earnings at the EBIT level by 10% to $156m, around 45% of the group's total EBIT. This was due to disciplined cost control and a healthy demand for gas.

Searching for growth

Another AGL business, called Energy Sales and Marketing (the unit that sells, rather than carries electricity and gas) reported that industrial gas sales were up 5.6% and residential sales were up a tidy 7.6% over the year. We suspect that the relative 'cleanness' of gas when compared with electricity, will make for healthy demand into the next century, all of which should be good for AGL's long term prospects.

While the company's core businesses are sound, it's the acquisitions and its role in the PNG-Queensland pipeline that have caught attention. As a utility company, its cash flows are much more stable than other businesses, so it can easily add to its present gearing of 87.7%, as at 30 June 1999, without being burdened. We expect further acquisitions over the next year and believe the company has an exciting future. ACCUMULATE.