When I look at AGL Energy (AGL) the first thing that springs to mind is the old adage of catching a falling knife, however at current prices we believe the stock is getting too cheap to ignore. AGL is one of Australia’s largest vertically integrated utility businesses however what many don’t appreciate is that they also hold the mantle as our largest private owner, operator and developer of renewable generation assets. Since it’s 2017 high of $28, AGL has been consistently sliding as the growing impact of the energy transition took hold. Not only has the outlook for AGL’s earnings taken a hit, the growing uncertainty was obvious internally and was reflected in very wide guidance ranges from management plus multiple downgrades. AGL effectively went from a stable, predictable business to anything but. The market is now projecting a 12 month yield for AGL of 12% plus franking, we don’t think that’s likely however a number half that remains attractive plus there is growing corporate appeal in energy retailing. This is one elastic band that we think may have stretched too far.
MM is looking to take a small 3% position in AGL Energy (AGL)
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