AGL Energy (ASX: AGL), one of Australia’s oldest utilities, is optimistic about its future prospects and expects improved growth as it continues to implement renewable energy transition strategies. After enduring a challenging period in its 186-year history, AGL has informed investors about its strong momentum heading into the next financial year. The company has attributed its improved forecast numbers to higher wholesale electricity pricing and improved equipment availability. However, AGL anticipates that these positive factors will be partly offset by the closure of the Liddell Power Station, net bad debt expense, and expected market activity.
Revised Earnings and Profit Estimates
During the company’s annual Investor Day, AGL’s Managing Director and CEO, Damien Nicks, revealed refined forecasts for FY23. The underlying earnings before interest, taxes, and depreciation (EBITDA) are projected to range between $1,330 million and $1,375 million, slightly higher than the previous estimates of $1,250 million and $1,375 million. Additionally, the new underlying profit after tax forecast falls between $255 million and $285 million, compared to the earlier range of $200 million to $280 million. AGL also provided strong FY24 guidance, with EBITDA forecasted to be between $1,875 million and $2,175 million, and underlying profit after tax estimated to range from $580 million to $780 million.
AGL’s Optimistic Outlook for FY24
Mr. Nicks expressed confidence in the company’s outlook for the next financial year, stating, “Looking ahead to FY24, without the challenging energy market conditions that we saw at the start of this financial year, namely widespread planned and unplanned outages coupled with unprecedented market volatility, we expect FY24 to be a stronger year as we see the sustained recovery of wholesale electricity prices roll through.” He emphasised AGL’s focus on a refreshed capital allocation framework and updated dividend policy, aiming to strike a balance between investing in transition opportunities, maintaining a healthy balance sheet, and providing suitable shareholder returns.
Transition Strategies and Updated Dividend Policy
AGL has set its sights on adding up to 12 gigawatts of renewable and firming assets by the end of 2035. Additionally, the company has revised its dividend policy, starting with the FY24 interim dividend. AGL now aims for a payout ratio of 50% to 75% of underlying profit after tax, which will be franked to the extent possible. This replaces the previous dividend policy created in September 2016, which targeted a payout ratio of 75% of underlying profit after tax. AGL implemented this change to help maintain its Baa2 investment grade credit rating and enable flexible capital deployment, supporting its new energy transition.
Expansion of Renewable Energy Development Pipeline
AGL Energy has experienced a significant increase in its existing renewable energy development pipeline, which has grown by over 60% from 3.2 GW to 5.3 GW. The company anticipates a gradual decline in gas demand, leading to a shift towards electrification. This transition is expected to be driven by factors such as the growing demand for electric vehicles and charging infrastructure. Furthermore, there is a projected rise in demand for energy management systems, energy storage solutions, smart technologies, and infrastructure to optimize energy usage.
AGL Energy is poised for a brighter future, leveraging the recovery of the energy market and its strategic focus on renewable energy transition. With improved earnings and profit estimates for FY23 and strong guidance for FY24, the company aims to strike a balance between investment opportunities, maintaining financial stability, and delivering returns to shareholders. AGL’s increased renewable energy development pipeline and anticipation of electrification trends reflect its commitment to meeting evolving market demands. As AGL Energy continues its journey towards a sustainable energy future, investors can look forward to the company’s positive growth trajectory.
