Energy crisis: Which is the better buy, AGL vs Origin?

A wallet with a one hundred dollar bill poking out sits on top of an electricity meter with the numbers rapidly going up, representing power prices in Australia rising as we ponder whether the Origin Energy share price will go up as a resultA wallet with a one hundred dollar bill poking out sits on top of an electricity meter with the numbers rapidly going up, representing power prices in Australia rising as we ponder whether the Origin Energy share price will go up as a result

Energy costs are skyrocketing, so much so that it’s taking up the front pages of newspapers.

Russia’s invasion of Ukraine has triggered an international shortage that has reached all the way to the other side of the planet, with gas and electricity providers hiking prices.

The energy crisis is so bad that one electricity retailer this week urged customers to switch to another provider before their bill doubles.

So does this mean ASX-listed companies like Origin Energy Ltd (ASX: ORG) and AGL Energy Limited (ASX: AGL) are wise buys right now?

Morgans analyst Max Vickerson took a look at the situation and picked which one he would back:

Energy retail market in crisis

The crisis is starting to have a snowball effect. Smaller retailers urging their own customers to leave will reduce competition in the medium term.

But this is good news for bigger power providers.

“Retailers like AGL that can cover most of the higher wholesale prices with fixed fuel contracts should see margins expand,” Vickerson said on the Morgans blog.

He explained that spot prices for power are remaining “stubbornly and consistently high”, indicating it’s not short-term demand surges that are causing the cost spike.

“In that kind of environment baseload generation is the most effective and fuel efficient method to cover spot market exposures.”

Baseload futures indicate spot prices will remain high well into the 2025 financial year.

AGL vs Origin: The verdict

So is Origin or AGL the better buy at the moment?

Origin this week announced a significant downgrade to its outlook, which saw its share price tumble 15% in one day.

But it’s not like AGL hasn’t had its problems. Technology entrepreneur Mike Cannon-Brookes led a shareholder campaign that forced the company to drop demerger plans and saw its chair and CEO depart last week.

Despite the governance issues, Vickerson feels like AGL is in a better position to navigate through the current energy crisis.

“AGL’s fixed price NSW coal contracts, better logistics and its integrated mining operation in Victoria will insulate it from the worst of the forces that have driven Origin to withdraw its FY23 energy markets guidance.”

He expects AGL will fix its boardroom issues soon enough, and rates the stock as a buy.

“AGL Energy’s standing has suffered because of the wrangling over the long term direction of the company, but the generation assets support stronger margins as consumer prices increase.”

Meanwhile, Vickerson is “wary” of buying into Origin shares, despite the current discount.

“By withdrawing guidance, management has highlighted the risks that can get amplified while spot electricity markets are so unruly,” he said.

“We retain our hold rating and will wait to see how the wholesale market fares during the coming peak winter season.”

The Origin share price is up 13.25% year to date, notwithstanding this week’s plunge. AGL shares have risen a tidy 38.35% since the start of the year.

Both pay reasonable dividends. AGL has a current yield of 5.7% and Origin 3.3%.

The post Energy crisis: Which is the better buy, AGL vs Origin? appeared first on The Motley Fool Australia.

Should you invest $1,000 in AGL right now?

Before you consider AGL, you’ll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and AGL wasn’t one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

More reading

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/V0qiW1r

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s