AGL's share price has
recently dropped 10 per cent from its year
high of $11.58.
Price movement
AGL’s share price has
recently dropped 10 per cent from its year
high of $11.58. Shareholders have had to
endure some volatile movements over the
last five years, from about $13 down to $8.
AGL suffered large write-downs after
exiting from the New Zealand retail electricity
market last year. Its recently announced that
the takeover of the Loy Yang power station is
the reason for its current price weakness.
Profile
The Australian Gas Light Company
was established in 1837. It listed on the stock
exchange in 1871 and is the largest energy
retailer operating in the Australian market.
Its businesses cover power generation,
LPG (via a 50 per cent ownership of Elgas),
infrastructure management, gas pipeline
reticulation, and telecommunications. Its
international assets include a 21 per cent
interest in TrustPower (electricity) and a 66
per cent interest in the Natural Gas
Corporation, both in New Zealand, and 100
per cent of Chile’s Gas Valpo.
Current details
AGL, Tokyo Electric
Power and a CBA-led consortium of
investors are buying the Loy Yang power
station for $3.5 billion. AGL is making an
equity investment of $200 million. Loy Yang
has been burdened with excessive debt since
it was privatised by the Victorian
Government in 1997. The Australian
Competition and Consumer Commission has
raised objections to the deal, saying it would
be anticompetitive.
Loy Yang accounts for 24 per cent of
Victoria’s electricity generation. AGL
supplies 40 per cent of Victoria’s customers
with electricity and gas. Victorian crossownership
regulations will need to be
amended, as AGL will be both a retailer and
generator in the same market.
Its stated objective of growing its current
2 million customers to 3 million by 2006 will
be substantially achieved. AGL has stated the
acquisition will not add to earnings in the first
year but will be positive thereafter. This would
place AGL on a P/E of 14.5 times for the 2004
financial year and 13.5 times for 2005, with a
dividend yield of 5 per cent.
Sector
Commonwealth and state energy
ministers have endorsed a new single energy
regulatory framework to regulate the
electricity and gas markets. It is intended to
reduce the duplication of responsibilities
across the states’ various legislation. If
achieved this could result in a more efficient
energy market, which would benefit the major
energy companies.
Worth buying?
ACCC decisions have the
potential to cause delays that will unsettle
shareholders. This would create an
opportunity to buy AGL at $9 to $9.50, at a
reasonable P/E (12-12.5). Wait to buy.
Geoffrey Hill is the presenter of ABC
NewsRadio’s daily afternoon finance report
and is an independent private client adviser.
Visit www.ghill.com.au
