AGL’s $650m buyback

Weaker profit outlook flagged

AGL shares have slumped to an 8½-month low after the power generator flagged a weaker profit performance.

AGL has lifted full-year underlying profit 2.2 per cent to $1.04 billion and unveiled a $650 million share buyback, but also said underlying profit would fall as much as 25 per cent over FY20 to between $780 million and $860 million.

Shares in AGL dropped as much as 8.2 per cent to $18.77 in early trade yesterday, their lowest since November 30.

AGL anticipates a hit of up to $100 million from December’s outage at its Loy Yang coal-fired power station in Victoria, a $70 million rise in posttax depreciation and the unspecified impact of power price regulation.

“Despite this lower earnings outlook, AGL’s operating outlook remains strong,” chief executive Brett Redman said.

Mr Redman said AGL, which this year walked away from a potential takeover of broadband provider Vocus Communications, remained committed to “creating new opportunities with increasingly connected customers”.

Royal Bank of Canada analyst James Nevin backed AGL’s decision to keep looking at expanding into data services.

“The push by AGL into broadband now looks inevitable as AGL looks to expand from its core electricity and gas energy offering,” Mr Nevin said.

“We think a move into retail broadband is an incremental step out from AGL’s core expertise that makes sense, while we thought the move into owning and operating fibre infrastructure represented a much bigger risk and is harder to justify.”

Underlying profit was in line with AGL’s guidance and narrowly beat analyst consensus of $1.02 billion.

Revenue for the 12 months to June 30 rose 3.4 per cent to $13.2 billion, but net profit fell 42.8 per cent to $905 million largely because of changes to derivatives contracts as wholesale electricity prices rose.

Australia’s largest power producer raised its final dividend by a cent to a partially franked 64 cents and will begin its year-long buyback program on August 23.

It will also buy WA producer Perth Energy for up to $93 million.