AGL forecasts bright future on the back of energy market recovery
One of Australia’s oldest utilities, AGL Energy (ASX: AGL), is forecasting a brighter future and improved growth as it continues its implementation of renewable energy transition strategies.
After what has been one of the more traumatic periods in its 186 year history, AGL has told investors that it has strong momentum heading into the next financial year.
The company has revealed improved forecast numbers on the back of strong periods of higher wholesale electricity pricing and improved equipment availability. However, the company expects the numbers to be partly offset by items such as the closure of the Liddell Power Station, net bad debt expense and anticipated market activity.
Revised earnings and profit estimates
Speaking at the company’s annual Investor Day, managing director and chief executive officer, Damien Nicks, revealed that AGL has refined its FY23 forecast to an underlying earnings before interest, taxes, depreciation (EBITDA) of between $1,330 million and $1,375 million. This was up slightly from previous estimates of between $1,250 million and $1,375 million.
The company’s new underlying profit after tax forecast is between $255 million and $285 million after previous estimates of between $200 and $280 million were released earlier.
The company also revealed strong FY24 guidance numbers with EBITA forecast to be between $1,875 and $2,175 million while the underlying profit after tax has been estimated to be between $580 and 780 million.
“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,” Mr Nicks said.
“Our refreshed capital allocation framework and updated dividend policy are focused on striking the balance between investing in the opportunities of the transition, while maintaining a healthy balance sheet and providing appropriate shareholder returns.”
Transition strategies and updated dividend policy
Mr Nicks said AGL is looking to add up to 12 gigawatts of renewable and firming assets by end of 2035.
He also revealed that the company has updated its dividend policy, starting with the FY24 interim dividend.
AGL is looking to achieve a payout ratio of between 50% and 75% of underlying profit after tax, which will be franked to the extent possible.
This replaces AGL’s current September 2016 created dividend policy which targeted a payout ratio of 75% of underlying profit after tax.
The company told shareholders it had implemented the dividend policy change to assist in maintaining its Baa2 investment grade credit rating and to allow for flexible deployment of capital.
It also suggested that the change will support its new energy transition.
Increase in renewable energy development pipeline
The company’s existing renewable energy development pipeline has increased by over 60%, from 3.2 GW to 5.3 GW.
It also predicted a shift to electrification as the result of a forecast gradual decline of gas demand.
That electrification growth is tipped expected to be driven by such items as the growing demand for electric vehicles and charging infrastructure.
There is also tipped to be greater demand for energy management systems, energy storage solutions, smart technologies and infrastructure to optimise usage.