The market may be pushing higher again on Thursday, but the same cannot be said for the AGL Energy Limited (ASX: AGL) share price.
In early afternoon trade the energy company's shares are down almost 4% to $21.34 following the release of its half year results.
What happened in the first half?
For the six months ended December 31, AGL Energy posted revenue of $6,337 million and a statutory profit after tax of $290 million. This was a 2% and 53% decline on the prior corresponding period.
Its statutory profit was impacted by negative movements in the fair value of financial instruments. Management advised that the non-cash movement primarily reflected higher forward prices for electricity and is consistent with the way AGL hedges its electricity generation position through forward contracts.
On an underlying basis the company delivered a solid 10% increase in profit to $537 million or 81.9 cents per share.
The increase in underlying profit was due to higher electricity prices in its Wholesale Markets business, which offset margin pressures from continued elevated levels of customer churn in its Customer Markets business.
Customer churn levels increased to 19.6% during the first half. While this is very high, it is 6.4 percentage points below the rest of the market.
Net cash from operating activities fell 15% to $678 million, but that didn't stop the AGL Energy board from lifting its interim dividend by 2% to 55 cents per share. This dividend is 80% franked and will be paid to eligible shareholders on March 22.
Looking ahead, management held firm with its underlying profit after tax guidance. At present the company is tracking towards the mid-point of its $970 million to $1,070 million range.
Should you invest?
Given the tough trading conditions, I feel this was a reasonably solid result from the company.
But not enough for me to want to invest. I suspect energy prices will be a hot topic during the Federal election and energy retailers may be pressured to cut them. I'm concerned that this could weigh on the company's profits and dividend in the near term.
Instead of AGL, I would suggest investors avoid the industry and consider getting their exposure to energy through the likes of BHP Group Ltd (ASX: BHP) or Caltex Australia Limited (ASX: CTX).
