The AGL Energy Limited (ASX: AGL) share price has just hit a new multi-year low under $8 a share. With a dividend over 10%, is AGL a buy?
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The AGL Energy Limited (ASX: AGL) share price is not having a great day today, to put it mildly. AGL shares are currently the second-worst performer of the S&P/ASX 200 Index (ASX: XJO) today, down a hefty 4.5% at the time of writing to $7.99 a share. That’s not quite as disappointing as the EML Payments Ltd (ASX: EML) share price today, which is topping the ASX 200 losses with a ~40% loss today. But it’s probably still not something AGL shareholders would like to see.
AGL shares have gone as low as $7.96 a share during trading so far today. That puts AGL at the lowest levels the company has traded at since July 2004, a 17-year low. Ouch. For some context, back then, John Howard was about to face off against Mark Latham for Prime Minister. At the same time, George W. Bush was about to seek re-election as US President. Also, Mean Girls, Shrek 2 and Harry Potter and the Prisoner of Azkaban had just come out in cinemas.
AGL shares are now more than 71% off of their all-time high of ~$27.70 that the company hit back in 2017. As a result, AGL’s trailing dividend yield has hit a whopping 10.21%, which the market is clearly not viewing as sustainable. So what on earth has happened to what used to be the largest energy generator and retailer in the country?
Well, AGL has been suffering for a while now due to conditions in the national electricity market. Low and unstable electricity prices and the looming closure of the Liddell coal-fired power plant are doing the company no favours. Investors also didn’t respond well to the AGL CEO’s sudden exit last month.
Also seemingly working against the company is AGL’s planned restructuring, which it announced back in March. AGL told the markets it plans on splitting into two companies. One, the ‘New AGL’, will house its electricity retailing business. The other, ‘PrimeCo’, will hold AGL’s electricity generation business. After an initial positive share price reaction, investors have seemed to decide that this new look for AGL won’t live up to its promise. That’s going off how AGL shares have slid another ~20% since the announcement.
Are AGL shares a bargain-basement buy?
Given the extent of AGL’s slide, I’m sure many value-tilting investors out there are wondering if these multi-year lows we are seeing are a buying opportunity. Well, one broker who does see some value in the AGL share price at these levels is the investment bank, Goldman Sachs. According to CommSec, Goldman maintained a 12-month price target of $10.45 for the AGL share price following its restructuring announcement. although Goldman remains ‘neutral’ on AGL, it sees the company’s Portland smelter agreement, the near-term outlook for its existing business structure, and higher oil prices as reasons to justify a $10.45 per share valuation.
I’m sure AGL investors will be hoping Goldman’s predictions prove accurate.
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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends EML Payments. The Motley Fool Australia has recommended EML Payments. 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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