AGL Energy: Slowing Economy a Near-Term Risk but Attractive on Long-Term View

Narrow-moat-rated AGL Energy screens as undervalued following the recent selloff, with the stock trading at a 24% discount to our unchanged AUD 12.80 fair value estimate. While there are some near-term risks to electricity demand and thus wholesale prices, we think the longer-term outlook remains solid. At present, AGL trades on a low forecast fiscal 2024 P/E ratio below 10 and offers a generous dividend yield close to 6%, mostly franked from fiscal 2025 onward. We continue to forecast earnings remaining relatively flat over the long term as investment in renewable energy and batteries offsets the expiry of cheap long-term coal contracts and the closure of coal power stations.