The AGL Energy Limited (ASX: AGL) share price is sinking today after the energy company delivered its full-year results.
AGL reported a 12% increase in statutory profit to $1.01 billion but a 22% fall in underlying profit to $816 million. Nonetheless, both were ahead of expectations.
Statutory profit rarely exceeds underlying profit but in this case, management’s decision to lock in electricity prices means it has actually made money on these ‘future’ contracts and that must be reported.
What about AGL’s dividend?
Shareholders will be disappointed by the 18% cut in the final dividend to 51 cents per share, but more concerned about the decision to remove all franking credits for the next two financial years.
It seems the company’s recent losses are exhausting AGL’s franking reserve, to the point where it no longer needs to pay tax – this is something to watch out for across the ASX should the pandemic extend into 2021.
The board attempted to divert investors’ attention by announcing special dividends of 25% of profit will be paid, taking the payout ratio to 100% in FY21.
Management is now forecasting a further fall in profit to $560-660 million next financial year due to lower electricity prices.
My take: Difficult period ahead for the coal-reliant company.
For a detailed write-up on AGL’s result, check out this article from Rask Media’s Jaz Harrison: AGL (ASX:AGL) FY20 report disappoints investors
This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.
