Company Interview / The AGL slide; is it time to buy?

Key Points:

- AGL Energy (ASX:AGL) offers stable outlook and attractive dividend despite recent share price weakness

- Battery investments viewed as significant long-term opportunity for AGL

- Ongoing network investments expected to keep electricity prices elevated

- Meridian Energy named as a top utility pick due to hydroelectric strength and dividend potential

AGL Energy (ASX:AGL) remains a key focus for investors after its share price dip, with Adrian Atkins from Morningstar offering insights on recent performance and future prospects. Atkins points out that despite a 10-12% drop in AGL’s share price following results that landed within guidance, the overall outlook remains stable. The share is down about 20% year-to-date, now trading at a price-to-earnings ratio of ten and offering a fully franked dividend yield of around 5%, which Atkins finds attractive for those seeking income. He highlights AGL's conservative payout ratio and expects dividends to grow as capital expenditure for growth tapers off.

Looking at potential risks, Atkins notes the market’s focus on upcoming challenges, such as the expiration of legacy coal and gas supply contracts around 2028 and the scheduled closure of coal power stations in the 2030s. He maintains, however, that AGL’s battery investments are an underappreciated strength. With returns of approximately 13% on existing battery assets, Atkins anticipates six additional batteries within five years, projecting an EBIT boost of $400 million to offset looming headwinds.

Regarding sector outlook, Atkins sees continued upward pressure on retail electricity prices, largely due to ongoing network investment and elevated wholesale prices. He believes companies owning energy networks stand to gain the most, and recommends Meridian Energy for its robust hydroelectric assets and dividend yield.