AGL Energy Limited‘s (ASX: AGL) share price is down 9% after the energy business released its FY20 report to investors.
AGL is one of the major retailers of energy in Australia. It also has several energy generation assets, both renewable and non-renewable.
AGL announced that its statutory profit was up 12% to $1 billion for FY20. However, underlying profit after tax fell 22% to $816 million.
Its statutory profit went up due to the positive movement in the value of financial instruments, reflecting lower forward prices for electricity and the way AGL hedges its electricity generation. The statutory result also include $17 million of costs relating to the Perth Energy acquisition costs and the partial impairment of its stake of the assets owned by the Powering Australian Renewables Fund.
The underlying profit excludes the items I just mentioned. The decline was due to: the unit 2 outage at the power station AGL Loy Yang, a reduction in gas sales volumes, lower wholesale electricity and large-scale generation certificate prices and increased depreciation and amortisation expenses.
There were a couple of pleasing positives – net operating cashflow rose 35% to $2.16 billion and there was growth in its customer numbers to 3.95 million.
The AGL board declared a final dividend of 51 cents per share, bringing the full year dividend to 98 cents per share. That’s a drop of about 17.5% from FY19.
AGL has provided guidance for FY21 underlying profit to be between $560 million to $660 million. That’s a drop of 19% to 31% on the FY20 result. This includes $80 million to $100 million from an insurance payout.
The profit is expected to be lower due to lower gas and electricity margins. COVID-19 is also expected to hurt earnings. Operating costs are expected to be flat.
Franking on dividends is expecting to reduce to 0% while it uses its historic losses, but it will pay special dividends to offset the loss of franking income.
AGL may have seen the highest margins for a while in the current environment. For an energy investment I’d rather buy something like APA Group (ASX: APA), or just another ASX dividend share with better growth potential.