AGK

AGL Energy (AGK) has a $15.07 share price target from Australian stock analyst Macquarie Research Equities

AGL Energy (AGK) The happy family talks it up - Strategy day

Focus on readiness for the new regime:

Carbon pricing and renewables as well as NSW privatisation are seen as key drivers of AGL growth opportunities over the next five years, particularly renewables where wind seems likely to offer good returns on capital.

Retail strategy based around scale and new IT platform on track:

AGL Energy Ltd (AGK) has a reiterated Buy stock recommendation and an upgraded $15.50 share price target from Australian stockmarket analysts from Citi.

AGL Energy Ltd (AGK): A Value Proposition

AGL Energy have an increased share price target of $17.20 (adding 40 cents) from stock analysts Citi Investment Research. The principal reason for this uplift is the now material increase in the value of AGL Energy's 27.5% equity stake in QGC. At Citi's Infrastructure & Utilities Conference held on Wednesday, Paul Anthony addressed the market’s concerns around AGL Energy's electricity retail coverage. The analyst estimates that AGL is in fact slightly long of generation for FY08. This view is driven mainly by the timing of Torrens Island Power Station acquisition, which should be completed in July. AGL Energy's c.3,300MW of equity generation allows considerable flexibility in the company's hedging decisions. As a result, AGL Energy does not necessarily need to be contracting further than three years out, although the analysts would expect the company to buy hedges and caps from the market if prices were appealing relative to internal SRMC. Despite the company referring to its 32.5% equity stake in LYA as 'non-core', the analysts expect the asset to remain an integral part of AGL's generation portfolio for some years to come. they forward price estimates for LYA remain conservative, FY09 for instance, they are projecting a $36.7/MWh achieved price, 44% below the current forward. The analysts are of the belief, that the considerable increase in the value of AGL Energy's stakes in QGC and AOE (via its Moranbah stake) have not been reflected in the share price. The value uplift in the analysts' sum-of-parts for AGL Energy's stake in QGC is 44cps. This underpins the increase in target price to $17.20.

Origin Energy (ORG) is is currently trading at a 9% premium to analyst Citigroup Investment Research's (CIR) fair value, whereas AGL is trading at a 5% discount. On that basis, CIR's preference remains for the latter; however, they concede that ORG potentially has greater upside should AGL make a hostile move. In a move that overshadowed ORG's 1H07 results, AGL released a statement and presentation that set out in detail management’s view on the potential benefits of merging the two companies. AGL's presentation outlines the prospect of annual benefits reaching $330m; this appears to be considerably above ORG's estimate. In a proposal put forward on January 16, AGL offered a premium of 9% (based on three-month (VWAP) via an exchange ratio of 1.86 ORG shares for each AGL share. ORG accepts that this exchange ratio was proposed; however, management stated that relative value, in its view, was not appropriately reflected in recent share price history. ORG reiterated its position as set out in its rejection of the AGL proposal last Friday: specifically, the value leakage encountered in merging will ultimately undermine the benefits of a combination. Furthermore, in its 1H07 presentation, ORG outlined its view that corporate and retail benefits would be well below AGL estimates. AGL's release appears to have curried little favour with ORG; management is resolute in its opinion that a merger does not present a compelling prospect. For AGL to go hostile, management would require great conviction in its estimate of merger benefits. In CIR's view, an exchange ratio of 1.62x would be the maximum extent of an AGL offer.

AGL Energy (AGK) have a Neutral 2 share trading recommendation and a price target of $15.90 from share analyst UBS. AGL Energy have increased its gas fired generation portfolio via the acquisition of an old, but valuable, plant in South Australia (Torrens Island). The analyst see the transaction as EPS accretive and strategically useful. Extra peak load capacity could offset some of the worry over Southern Hydro's performance during the drought. AGK was a likely major customer of TIPS and thus in a strong position to buy the business. AGK's customers are the foundation of its value. This transaction is the latest in a string of deals that are helping to maximise the value of AGK's business. Even if the proposed ORG transaction falls on either the Scylla of value or more likely the Charybdis of the ACCC there likely remain further adventures for AGK shareholders. To date most of the actions seem to be adding value Their price target does not reflect anything for the ORG merger potential. About 50% of value is in the retail business with generation already accountig for 1/3 of value. Upstream is the remainder. Interest coverage remains good.