The AGL Energy Ltd (ASX: AGL) share price climbed over 9% after the company announced its earnings guidance.
It is one of the biggest producers of energy in Australia, and also one of the largest energy retailers.
Strong profit guidance
AGL held an investor day today, which included an update to its FY23 guidance, FY24 guidance and an update about its dividend policy.
FY23 earnings guidance
The ASX share said that it has narrowed its underlying earnings ranges for FY23.
Underlying EBITDA (EBITDA explained) is expected to be between $1.33 billion and $1.375 billion, up from previous guidance of between $1.25 billion and $1.375 billion. Underlying profit after tax is projected to be between $255 million and $285 million, up from a guidance range of $200 million to $280 million.
AGL explained that it experienced an improved second half after a tough first half, thanks to increased generation due to improved plant availability and a reduction in forced outages, and a higher customer margin due to “disciplined margin management and an increase in customer services”. However, this was offset by higher operating costs because of higher maintenance costs and the impact of inflation.
FY24 earnings guidance
AGL also said that for FY24, its underlying EBITDA is expected to be between $1.875 billion to $2.175 billion, while underlying profit after tax is guided to be between $580 million and $780 million.
This higher profit guidance is based on “sustained periods of higher wholesale electricity pricing, reflected in pricing outcomes and reset through contract positions.”
FY24 should benefit from improved plant availability, as well as the start of operations for the Torrens Island and Broken Hill batteries, as well as the “non-recurrence of forced outages and market volatility impacts from July 2022 of around $130 million.”
However, some of the benefits of that are expected to be offset by the closure of Liddell Power Station and higher operating costs.
Dividend payout ratio
Starting from the FY24 interim dividend, AGL said it’s going to target a dividend payout ratio of between 50% to 75% of underlying profit after tax. That’s a change from a target payout ratio of 75% of underlying profit after tax.
This change is to ensure it has a good rating for its debt, so that it can have a flexible deployment of capital, and have money to strengthen the core business and “realise timely opportunities through the energy transition, all whilst maximising returns to shareholders.”
AGL may start paying partly franked dividends from the FY25 interim dividend.
The FY23 final dividend is expected to be 75% of underlying profit after tax.
Final thoughts on the AGL share price
This seems like good news for AGL – a strong rebound in profit is just what investors want to see. I don’t know what’s going to happen next, but the AGL price could keep rising if profit goes up.
