AGL Energy, once among the top dividend stocks on the ASX, among the likes of CBA, FMG, etc., is now 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 53% 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 AGL share price has consistently posted declines since August 2020. This year alone, AGL share prices have slumped close to 27%.
Yesterday was once again a day where AGL shares plummeted. AGL confirmed its intention to undertake a demerger to create two energy businesses with separate listings on the ASX. Under the demerger proposal, AGL Energy will become Accel Energy Limited (previously referred to as “PrimeCo”), an electricity generation business focused on the accelerating energy transition. Accel Energy will demerge a new entity, AGL Australia Limited (previously referred to as “New AGL”), a multi-product energy-led retailing and flexible energy trading, storage and supply business. AGL Australia will retain the AGL brand.
Essentially, AGL is looking to split into a retailing arm with clean energy assets and another arm for its coal-fired power stations, which are swiftly losing value as customers and investors seek cleaner, greener alternatives.
Accel Energy is to retain 15-20% shareholding in AGL Australia and the demerger is anticipated to be completed in the fourth quarter of FY22. AGL Energy went on to terminate its Special Dividend Program for the remainder of FY21 and FY22 and underwrite the Dividend Reinvestment Plan on ordinary dividends until demerger. In an update on their guidance, AGL’s underlying EBITDA is expected to be within the lower half of the previous range of $1,585 million to $1,845 million, and underlying NPAT is expected to be around the middle of the previous range of $500 million to $580 million.
The reception to this announcement was negative. AGL shares slumped over 10% and they have continued to be under pressure. AGL shares currently trade at $8.10 a share. The performances and the ongoings at the company has erected a red flag to AGL and for income chasing investors, AGL is no longer one of the best dividend stocks on the ASX as the risks have shot through the roof.
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