Weak Wholesale Electricity Prices Weigh on AGL Energy’s First-Half Result and Outlook

Narrow-moat AGL Energy’s first-half fiscal 2021 result was broadly in line with our expectations and we maintain our AUD 17.00 fair value estimate. The firm reported underlying net profit after tax, or NPAT, of AUD 317 million, down 27% on the prior corresponding period, and a statutory loss of AUD 2.3 billion, which included preannounced noncash charges of AUD 2.7 billion. The interim dividend comprises a AUD 0.31 ordinary dividend and a AUD 0.10 special dividend, both unfranked. Despite challenging operating conditions, we view AGL as undervalued on a long-term view. The stock is trading at a 34% discount to our fair value estimate, offering investors a fiscal 2022 dividend yield of 5% with robust growth potential over the longer term as conditions improve.