AGL Energy Limited (ASX: AGL) shares have made a slight recovery over the past week and are up nearly 15% on the back of some positive announcements.
The long-term picture still doesn’t look too great unfortunately, with shares down 35% since the bottom of the market in March last year. With shares looking this beat up, is there a potential value play here?
AGL is involved in the production and retailing of electricity and gas for residential and commercial use. While it is starting to focus more on renewable sources, the majority of its power generation still comes from coal and gas-fired power stations.
AGL share price
Recent share price movements
There have been a few recent announcements that could partly explain why AGL’s share price has been pushing higher recently.
Last week, AGL revealed that it had won a contract to supply a portion of the electricity to the Portland smelter until 2026. The deal has been supported by the federal and state government, which will provide up to $19.2 million per year across four years to support the smelter.
AGL’s share price got a further boost yesterday when it announced it had filed a planning application for a 200mw four-hour duration battery at its Loy Yang coal-fired station in Victoria.
This battery project is part of AGL’s broader commitment to construct 850mw of grid-scale batteries by around June 2024.
Storage is often considered to be the limiting factor behind renewables, so it seems that this is a step in the right direction for the company.
Are AGL’s shares a buy?
I probably wouldn’t be a buyer of this news alone as the company is still facing some pretty significant challenges ahead.
Due to the effects of COVID-19, AGL has experienced a significant reduction in wholesale energy prices, which has put downward pressure on its margins. AGL is currently focusing on delivering $150 million in cost reductions, which will be benchmarked to FY15 operating cost levels.
You can read AGL’s H1 FY21 results here.
While I can appreciate AGL is transitioning to cleaner forms of energy, the company is still Australia’s biggest emitter of carbon emissions. From an ethical standpoint, it’s probably unlikely to pass most investors’ ESG filters.
“Blue chip” stocks like AGL are often praised for their stability and quality characteristics, but I think there might be better choices if you’re looking for larger capitalisation companies to add to your portfolio.
If you’re looking for larger companies, click here to read: I think these are the best large-cap ASX shares at the moment: XRO, ALU & CSL.