AGL Energy Limited (ASX: AGL) is arguably one of the most damaged large cap stocks on the ASX. AGL retails electricity to wholesale markets and customer markets. Wholesale electricity prices are plunging, and renewables are surging, and AGL is caught right in the thick of this storm and there looks to be no way out.
The debate around climate change is intensifying in political, corporate and investor circles. Many investors have been aligning their portfolio by divesting from commodities that are harmful for the environment solely from an ethical standpoint. Thus, this entire sector is suffering from – a fundamental shift and a cultural shift.
The AGL stock price has shed 50% over the past 1 year. Since the Covid19 crash in March 2020, it looked for a while that AGL was on the road to recovery, however, the stock has consistently posted declines since August 2020. This year alone, AGL share prices have slumped close to 27%.
AGL announced its plans to create two leading energy businesses focused on executing distinct strategies via a structural separation back on the 30th of March. Under the plan, the two segments would be:
- New AGL – This will be AGL’s energy retailing business that includes its battery pipeline and renewable energy assets.
- PrimeCo – This will contain all the coal stations where AGL generates its power which will then be retailed.
This demerger means that AGL is looking to separate its coal power plants business from its energy retail business – allowing the retail entity of AGL to be viewed as a zero-carbon electricity company for appearances. Currently, reports suggest that AGL is the top emitter of greenhouse gases in Australia with over 2.5x more emissions than second placed Energy Australia. The demerger will thus enable the company to hide its coal assets in a separate business and alter its reputation.
AGL Managing Director and CEO, Brett Redman, said that the proposed separation builds on AGL’s heritage of innovation, investment and structural adaptation to meet the needs of a dynamic industry. He continued – “The proposed structural separation would give each business the freedom, focus and clarity to execute their own respective strategies and growth agendas, while playing an equally important,but different,role in Australia’s energy transition.”
This announcement however did not renew faith in the market. AGL shares have continued to slide. At market close today, AGL shares closed at $8.73 a share.
Income stocks are potentially one of the hardest to pick as there are a lot of factors that need to be considered – from industry tailwinds to financial health of the individual stocks, and a lot of little things in between them. Several ASX listed stocks have also cut dividends in light of the challenges posed by the pandemic. The low interest rate environment brings income stocks to the forefront for most investors. With the earnings season bringing back dividends in most industries, Shares in Value research team have picked their top 3 ASX income stocks to buy and it can be downloaded for free!