AGL Energy in 2024: What does the year ahead hold for Australia’s largest energy provider?

Ujjwal Maheshwari Ujjwal Maheshwari, January 19, 2024

AGL Energy in 2024…only time will tell what it has in store for the company. Will it finish the year with another modest gain (15% over CY23), will it do even better than that, or will investors remember the looming issue that is its capex bill.



A recap of AGL Energy for those who’ve been living under a rock

AGL is a generator and seller of electricity and gas to Australian households and businesses. In fact, it is the largest of its kind in Australia. It is also Australia’s largest carbon emitter and is in a state of limbo right now. It wants to move away from coal fired power and towards renewables. It is clear this will take a while and cost a lot of money, although it is moving at a slow pace to implement a future plan (let alone fund it). Its Loy Yang A and Bayswater thermal assets won’t close until the 2030s.

But, something has to give. It made a 1HY23 loss of over A$1bn, hindered by extended outages at its ageing Loy Yang A and Hunter Valley power plants. The company has no choice but to embrace the future.


The Turn of Tides: Mid-Year Fluctuations

As we all know, the financial world can be unpredictable. The stellar run of AGL Energy in 2023 wasn’t immune to this truth, not being consistent growth throughout the year. After a positive first half, momentum lost steam.

Let’s dive into what sparked AGL’s impressive rise. Key strategic announcements were the heroes here. Notwithstanding the 1HY23 loss, it was not all bad news. The company reminded investors of the expected boost from higher wholesale electricity prices is set to kick in during FY24 and FY25. This was huge because it meant AGL Energy could potentially charge more for electricity down the line. And there’s more – AGL Energy lifted its profit expectations for FY23, from the initial $200 million-$280 million range to $255 million-$285 million. This news really got investors excited, showing them that AGL wasn’t just doing well, it was doing better than expected.

But as 2023 rolled on, the story began to change. The second half of the year brought a twist – falling wholesale prices hinted that AGL’s future profits might not be as sunny as expected. Investors started to get jittery. Why the drop in prices? Journalists and analysts pointed to a warmer-than-usual winter and a boom in rooftop solar installations as the culprits for the dip in wholesale electricity prices. This was a bit of a game-changer for AGL. After riding high on expectations of strong returns in FY24, the company now faced a new reality where profits might not reach the heights everyone was hoping for.


The Much Important Numbers for AGL Energy

Let’s talk numbers and see where AGL stands in the market. According to Commsec, AGL’s value is tagged at about 9 times its forecasted earnings for FY24. To put it simply, that’s a measure of how the market values AGL compared to what it’s expected to earn. This number isn’t just plucked from thin air; it’s backed by solid performance, like the 25% jump in their profits for FY23, reaching a cool $281 million. But here’s the twist – the future of energy prices is like a cloud on the horizon, a bit uncertain. This uncertainty is making investors think twice, leading to a more careful approach when it comes to AGL’s value in the long run.


AGL Energy in 2024 might be a good story, but What After?

Peering into the future, AGL Energy seems set for a brighter horizon in FY24. They’re expecting a nice bump in profits – we’re talking about EBITDA potentially swelling to a hefty $1.875 billion to $2.175 billion range. And their net profit? It could soar to somewhere between $580 million and $780 million. These numbers paint a pretty rosy picture. But here’s the catch – the energy market is like a rollercoaster, full of ups and downs. So, when it comes to FY25 and the years that follow, it’s anyone’s guess. Analysts and market watchers are keeping their eyes peeled, trying to predict where AGL Energy will go in this unpredictable energy landscape.

The problem is, it will require significant capex to fund its renewable energy ambitions, whether through debt funding or dilutive equity funding. AGL Energy plans to have 5GW in new renewables supply by 2030 and 12GW before 2036. It recently commissioned the 250MW Torrens Island Battery, the 2nd largest in Australia. This thing is the same size as the Adelaide Oval and includes 218 battery cabinets housing more than 6,000 battery modules. Impressive in its own right, although you could argue the company might have to move faster if it intends to reach its goals.



Forgetting about the long-term and looking back to the short-term, there’s a buzz of excitement about AGL’s potential to ramp up its profits in FY24, setting a hopeful vibe. AGL is eyeing an increase in dividends for FY24, aiming for 53 cents per share. For investors, that’s like a beam of light, signalling stronger profits on the horizon for AGL. But, as with any journey, the road ahead has its share of unknowns. What’s going to matter most for AGL? Its ability to zigzag with the times, its smart planning moves, and how quickly it responds to the ever-changing energy market. These are the key ingredients that will shape the future path AGL Energy faces.



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