Analyst Note| Adrian Atkins |
Narrow-moat AGL Energy reported fiscal 2020 underlying net profit after tax of AUD 816 million, down 22% on last year and in line with our expectations. But guidance was very well below our expectations. Management guided to underlying NPAT of between AUD 560 million and 660 million in fiscal 2021. We downgrade our forecast 21% to AUD 620 million. Considering 2021 is expected to include an insurance payout of up AUD 100 million to cover a past power station outage, we think NPAT is likely to fall again to about AUD 524 million in fiscal 2022. That represents a halving of profit since the 2018/2019 peak. Thereafter, we forecast NPAT recovers at a low-teen percent per year on average through to fiscal 2025, driven by tightening electricity markets. We downgrade our fair value estimate 10% to AUD 18 per share and consider the stock modestly undervalued at current prices.