Own AGL shares? Experts weigh in on outage fallout

The AGL Energy Limited (ASX: AGL) share price is bouncing back on Thursday as experts offer their two cents on the latest failure at Loy Yang A.

The company updated the market on a fault at the coal-fired power station yesterday.

The cause of the issue – said to be an electrical fault – is still under investigation. However, the company has warned it could see Loy Yang A – which supplies 30% of Victoria’s electricity – operating one generator down until August and AGL facing a bill.

Experts also reportedly believe the outage could throw a spanner into the works of the company’s demerger plans.

At the time of writing, the AGL share price is $8.71, 2.23% higher than its previous close.

For context, the S&P/ASX 200 Index (ASX: XJO) is also in the green on Thursday, up 0.28% at the time of writing.

Let’s take a closer look at why experts are particularly worried about the outage at the coal-fired power station.

Experts concerned by Loy Yang A outage

The AGL share price is in the green amid reports experts are concerned about the fallout that might come from Loy Yang A’s second failure in three years.

As long-term market watchers might remember, a unit at Loy Yang A faulted back in 2019.

That fault saw it shut down for seven months and ultimately cost the company $105 million. That expense was later reimbursed through insurance.

However, Morgan Stanley analyst Rob Koh is warning the outage might not have such a silver lining this time around. Koh was quoted by the Australian Financial Review as saying:

AGL recovered those losses from business interruption insurance, however AGL is now self-insured.

We view a repeat of this scenario as a worst case.

Meanwhile, Barrenjoey downgraded the company’s stock to ‘underweight’, slapping it with an $8.02 price target, in the wake of the outage, reports The Australian.

The broker also reportedly believes the outage could bring a $70 million – or $20 million to $30 million per month – hit to AGL’s earnings.

It’s also said to think the outage could see the company being forced to buy energy from the pool. That could cost it between approximately $115 and $138 per megawatt-hour over the coming months.

The publication quoted Barrenjoey analyst Dale Koenders as saying:

We see potential for material recovery of earnings in [financial year 2024/financial year 2025], when current higher electricity prices likely pass through the [one to three year] rolling hedge program – assuming Loy Yang A returns to service.

But Loy Yang adds to uncertainty around demerger (dyssynergies, transfer pricing, funding, guidance, etc), which we think needs to be resolved before investors consider whether to pay for these future earnings.

Owners of AGL shares are expected to get the chance to vote on the demerger in July. If agreed upon, the split should occur shortly after.

AGL share price snapshot

This year has been a good one so far for the AGL share price.

Right now, the energy producer and retailer’s stock is 38% higher than it was at the start of the year. Though, it’s slipped 4% over the last 12 months.

The post Own AGL shares? Experts weigh in on outage fallout appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper 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 Bruce Jackson.

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