To The Moon

Didn't know whether to shares about $AGL ENERGY LTD(AGL.AU)$as it is one of my more controversial holdings.

But well since there are no articles on it, might as well start the ball rolling. 

Some background from the horse's mouth:

"AGL is a leading integrated essential service provider, with a proud 185-year history of innovation and a passionate belief in progress – human and technological.

We deliver 4.5 million gas, electricity, and telecommunications services to our residential, small and large business, and wholesale customers across Australia.

We operate Australia’s largest electricity generation portfolio, with an operated generation capacity of 10,984 MW, which accounts for approximately 20% of the total generation capacity within Australia’s National Electricity Market."

From the above seems like a normal utility company with some telcommunications thrown in? That's on the surface. 

AGL had been infamous due to resistance toshut down their coal power plants. 

Below statement is from Greenpeace. 

"AGL is Australia's number one climate polluter, and it's not even close. 83% of their electricity comes from burning dirty coal, meaning they emit more than double the next biggest polluter."

Looking at it from shareholder perspective, why will we want to reduce our profit marginby closing coal power plants early? Other energy sources will be more expensive. 

Furthermore electricity fees had been under pressure due to Covid-19 which significantlyslowed down Aussie economy. 

As an energy provider, AGL gets whacked from :

1. The green movement, being forced to spend more capital to shut down coal powerstations early and to build replacement facilities 

2. Low energy prices reduces profit margin, due to covid-19.

Due to the label of being a carbon emitter, funds or investors with ESG (Environmental, social and corporate governance) considerations are withdrawing funds or not able to invest into it. 

That is despite, AGL having reneweable energy sources as below:

In fact, AGL has repeatedly stated their commitment towards the changing out of coal energy, and to move towards carbon neutral.

The environment friendly organisations continue to feel that the pace is not fast enough,and there's constant pressure on AGL to move towards green energy even faster.

AGL continues to add on to green energy, such as below:

https://www.agl.com.au/about-agl/media-centre/asx-and-media-releases/2021/december/agl-and-fortescue-to-explore-green-hydrogen-for-hunter-energy-hu

There are opportunists in the market, who looked at AGL current valuations, and tried to do takeover or AGL firstly at $7.50 and thenat $8.25. Both of which were rejected by theboard. 

https://amp.theguardian.com/business/2022/mar/06/agl-rejects-higher-bid-from-mike-cannon-brookes-and-brookfield-potentially-ending-takeover-push

The reason for takeover, is to "push Agl towards green energy faster", but to shareholders the real reason is due to the potential profit that AGL will bring once successful transition to green energy. 

In fact, AGL management had planned for the demerger of its assets. AGL will break into2 different companies. 

More details below:

https://www.agl.com.au/about-agl/media-centre/asx-and-media-releases/2022/february/shareholder-letter-in-relation-to-agl-energy-s-proposed-demerger0

The intention is to break away AGL's coal power stations into a seperate company, so that investors who are not comfortable due to ESG responsibilities can continue to investin AGL.

More information can be found below:

https://www.agl.com.au/about-agl/investors/structural-update/demerger-information

After sharing on AGL as a company, let me share my own inputs.

I have quite substantial holdings in AGL.

I started to add on AGL Since 1 Dec 2020.

It's a pathetic price then. 

The reason I added then was due to its defensive nature as utility company and also dueto its high dividends and i felt that the valuations was fair then.

Do take note that AGL is known as dividend trap, as it had high dividend rate Due to the price dropping significantly at my point of purchase.

The dividends continued to be cut due to underperformance of the company and also due to lower electricity fees.

As the prices continued to drop due to lowerelectricity prices and pressure by the Green groups, I continued to do DCA.

Above is my current price. I continued to add on as I believe that the following will happen:

1. Electricity prices will go up as economy recovers, increasing AGL profit margins

2. Renewables and green energy will eventually be priced at a premium once the demerger is completed, and AGL is increasing the pace of green energy adoption.

3. Same as above, I believe that the demerger will bring value to shareholders.

I guess that so far from the price movement,I am on the right track. Russia invasion accelerated the gas prices and also the push for green energy. 

With the increase in profit margins, I have faith that the dividend rates will eventually return.

AGL could be an opportunity that :

1. Haven't reached full valuation

2. Could have capital appreciation due to green energy focus

3. Electricity prices can only go higher especially with higher inflation.

4. Good dividend player once the profit margins returns.

I am unsure if the prices will continue on upward trend or will there be a dip In future.

I guess AGL could be a potential stock to buy the dip. But then again, I am biased as an existing shareholder.

Please do due dillegence Before any purchase.

Happy investing!

@TigerStars