Australia | Oct 23 2007
By Greg Peel
Five and half mill – it seems that’s the thank you price for stuffing a company.
The board of troubled energy provider AGL Energy ((AGK)) has wasted no time in making changes at the top in the wake of last week’s extraordinary profit downgrade which caught analysts, and the market, totally by surprise. Paul Anthony has been given his marching orders and a nice little payout, and long term executive, and previous Group General Manager Merchant Energy, Michael Fraser, has been given the tough task.
One of the more surprising aspects of the downgrade was one analyst’s comment that at the telephone conference call, Paul Anthony seemed just as shocked and confused as everyone else as to how his company could have got it so wrong. Anthony was brought on at a time when AGL’s share price was going sideways, and his approach was to go into acquisition mode. The share price is now much lower, and it is unlikely any acquisitions will be made in the foreseeable future.
Indeed, Merrill Lynch is now expecting a “massive shift in growth expectations”. Anthony’s aggressive M&A will be replaced by Fraser’s more risk averse approach. While management had previously targeted 15% growth in FY08, Merrills has now pencilled in 7.6%. AlintaAGL can be kissed goodbye.
AGL’s chairman suggested in another analyst hook-up that he expects no further downgrades to be forthcoming. Analysts across the board have absolutely no faith in this statement. UBS notes that Fraser is well respected in the company, but that most of the recent downgrade emanated from his particular division. At least the review, to the extent that it’s been taken so far, has not yet uncovered any new surprises. The board is not, however, expecting that the strategic review will be complete by the November 8 AGM. An external reviewer is being brought in.
Nor are any analysts holding their breath for a positive AGM. Macquarie notes that the first move from a new CEO is usually to distance him/herself from the predecessor’s guidance, and why would you come out looking positive only to set up for a fall? Indeed, no analyst expects AGL’s share price to go anywhere in the up direction for quite some time. Merrills also points out that now AGL will become a “value” and not a “growth” stock, there needs to be a share registry shift from investors focussed on growth and into those looking for value. Merrills notes so far only one side of the equation is moving – out.
Nevertheless, most analysts agree AGL is offering value at this level. It’s just not something you’d rush in and buy right now. Even Macquarie concedes the value, but maintains Underperform. The FNArena B/H/S ratio stands at 4/4/2, but the Buy raters include those whose computers set the rating based on share price/target price disparity alone. The average target has not changed on the Fraser news – it’s still $14.07 with the stock closing at $12.91 yesterday. This is very much a 12-month target.