AGL’s PowAR Fund Pays Through the Nose To Secure Tilt Renewables; Downgrading FVE 6%

We downgrade narrow-moat AGL Energy's fair value estimate 6% to AUD 16 per share after incorporating the likely acquisition of Tilt--which appears dilutive--and lower wholesale electricity price forecasts given ongoing weakness amid a wave of new renewable supply. These factors had a roughly equal impact on our valuation. But we continue to think AGL is materially undervalued. Our bullish valuation is underpinned by our view that electricity prices will recover over the longer term as new supply slows, ageing coal power stations close and gas prices rise.