As is customary for AGL Energy Ltd (ASX: AGL), it released its Financial Year 2016 earnings forecast this morning to coincide with today's Annual General Meeting.
Despite a number of write-downs expected, AGL has forecast its full year profit to increase between 3% and 14% compared to the 2015 financial year. Here's what you need to know:
- Underlying profit to be between $650 and $720 million for 2016, up from $630m in 2015
- 'New Energy' (renewable) losses expected to widen to $25m
- Modest rises in electricity and gas prices
- 'Slowing in the decline of residential electricity consumption' (i.e., not declining as much as it has in recent years)
- Improved retail profit margins despite strong competition
- $30m in restructuring costs (before tax) likely to be experienced
- Ongoing cost reductions (not quantified) thanks to restructuring
Higher prices and a full-year's contribution from the MacGen coal plant (acquired last year) are expected to be the main drivers of the profit increase, while lower costs and a renegotiated enterprise agreement at Loy Yang power station may also play a part.
It was interesting to note that losses from the 'New Energy' segment (including solar and wind farms) are expected to increase, which may make some shareholders uncomfortable as renewable energy is a key focus of management over the coming decades.
Management also removed the 'break-even' target date of the New Energy segment (previously set for 2018), instead aiming to generate $20 million in Earnings Before Interest and Tax (EBIT) by this time.
Asides from that, there were no cats thrown among the pigeons today, and investors should feel reassured that management is taking a steady, incremental approach both to maximising the gains from its existing assets, and transitioning into clean energy.
I am not certain that AGL has the ability to be a market-beating investment over the next ten years, but there are many worse companies out there to hold for the long term.
