AGL: Results 2012
Recommendation
AGL’s results are usually a complex affair and this year was no different. The company reported a net profit of $115m, down 80% from the same period last year. That number, however, includes a number of one-offs and is next to useless as a gauge of business performance. On an underlying basis, net profit was up 12% to $482m. From earnings per share of $1.00 a share, up 9%, a fully franked final dividend of $0.32 (ex date 30 Aug) was declared, taking full year dividends to $0.61.
Full year to 30 June | 2012 | 2011 | Change (%) |
---|---|---|---|
Revenue ($m) | 7,456 | 7,073 | 5 |
Underlying EBITDA ($m) | 904 | 805 | 12 |
Underlying NPAT ($m) | 482 | 431 | 12 |
EPS (cents) | 100.0 | 91.4 | 9 |
DPS* (cents) | 61.0 | 60.0 | 0 |
Franking (%) | 100 | 100 | N/A |
* Final dividend of 32.0 cents |
The gulf between underlying and reported profit can be explained by two factors. As usual, movements in derivative contracts, which electricity retailers require to lock in prices, made a contribution. This year, it was a charge of $212m. This charge, taken annually, reflects accounting rules more than it does performance and can safely be ignored.
The company also took a $155m hit on its existing Loy Lang A equity stake following the full acquisition of the asset at a lower price than in its books. This ‘loss’ is a good thing; it’s confirmation that AGL has purchased the asset cheaply. Whether it has purchased wisely is another matter. It’s too early to say.
AGL is acting aggressively to acquire new customers, having added a net 180,000 last year. The fierce competitive activity is slashing margins across the industry and management hinted that the current competitive spirit may not last. Gross electricity margins for both business and retail customers have already declined and it's a mistake to expect current growth rates to last.
Unusually, AGL singled out the Queensland state government’s audacious intervention in retail prices, highlighting that regulatory risk has increased for the entire industry as higher electricity prices start to bite. AGL’s share price has risen 5% since 08 Jun 12 (Sell - $14.96) as investors flock to the perceived safety of an energy retailer. Yet the high price – AGL now trades on an underlying PER of more than 15 – renders the stock less safe than ever. Risks, such as higher wholesale gas prices and the problems posed by a small gas resource, suggest premium prices are unwarranted. The result was a good one, but not enough to justify today's price. We’re switching to AVOID.