The AGL Energy Ltd (ASX:AGL) share price rose 3% to $25.79 after the company released bumper annual results this morning. Here's what you need to know:
- Revenue rose 13% to $12,584 million
- Underlying net profit after tax (NPAT) rose 14% to $802 million
- Underlying earnings per share rose 15% to 119.8 cents
- Dividends of 91 cents per share, up from 72 cents previously
- Cost savings target of $170 million achieved
- Outlook for underlying profit after tax of between $940 million and $1040 million in financial year 2018
So what?
It was another strong year for AGL, with the utility benefiting from higher electricity prices while costs stayed flat thanks to its cost cutting program. AGL's statutory profit was impacted heavily by a change in fair value of financial instruments. This figure was also incomparable to last year due to heavy write-downs in that year so I believe it would be more appropriate for investors to focus on underlying profit.
AGL is clearly benefiting from the rising wholesale cost of electricity, with this slide showing what drove this year's results:
AGL also reported that it has $1 billion of new projects under development, including an entry into the West Australian retail gas market, plus a number of renewable energy projects Australia-wide.
Now what?
AGL also forecast a significantly higher profit for next year, reflecting a 17% increase in underlying profits at the low point. This is again due to rising wholesale electricity prices, with management specifically noting that the forecast is "Subject to any adverse impacts arising from policy and regulatory uncertainty." Based on the amount of noise in the media, I reckon there's at least a moderate chance of regulatory or political changes. However, it's very difficult to conjure more electricity supply from thin air so I wouldn't be concerned about changes majorly affecting profitability if I were an AGL shareholder.
On a separate note, however, rising electricity prices are definitely priced in to the utility, with AGL now priced more like a growth company at 21x underlying earnings. On balance I would prefer not to pay that price tag for this company, yet with the kind of underlying profit growth it has been generating it could justify today's prices with a couple of strong years. It's in my 'too-hard' basket for now.
