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Due to the coronavirus outbreak, citizens are restricted to their respective homes dependent on teleworking while doing work from home, streaming to video platforms for entertainment, or landing to e-commerce sites for shopping. A reliable electric supply to power the essential home devices such as washing machines, fridges and light have become essential.
The Australian Governments Energy Council, including the Government of Australia and energy ministries at state and territory level, came together to combat against COVID-19 impact on the energy sector. They agreed to a comprehensive and coordinated approach to manage and respond to energy supply disruptions (gas, electricity and liquid fuels).
Considering the situation in Australia, the Australian Energy Regulator (AER) addressed its expectations from energy businesses operating in Australia. With an aim to protect small business consumers, Energy Networks Australia (ENA) had released a 'relief package', and AER sets ten principles for businesses to adhere. The relevant authorities of Australia intend to provide a reliable and continuous supply of energy to households and companies covering small scale.
With substantial support from the government and energy ministry coupled with the fact that supply of electricity and gas are essential to running households, the utilities sector has been one of the more stable sectors in these turbulent times.
Let’s have a look at three utility stocks that have performed reasonably well in 2020 - AST, APA, AGL.
AusNet Services Limited (ASX:AST)
While the financial markets are hit hard by the coronavirus, AST delivered positive returns of 14.52 per cent and 3.50 per cent in one month and on YTD basis, as on 14 April 2020.
AusNet mentioned that it would keep updating the market of any material developments because of coronavirus. The Company stated that it would continue to evaluate the financial impacts on its business due to any commercial and economic issues related to COVID-19 pandemic.
Some of the recent activities of AST are mentioned below:
Relief Package
During the hardships of COVID-19, AST announced to deliver a relief package to lessen the burden on customers of electricity and gas. The critical elements of the relief package were as follows:
- Network charges will be deferred or rebated applicable from 1 April 2020 to 30 June 2020.
- To provide support to small business and residential customers having a financial crisis.
- Applicable to small business facing problem from 1 April 2020 and other customers from 1 March 2020.
Lead Independent Director Appointment:
The Company announced on 26 March 2020 that Mr Robert Milliner was appointed as a lead independent director with immediate effect. In July 2015, he became an independent non-executive director.
EUR 500 million of Euro Bond
On 14 February 2020, the Company had successfully priced a EUR 500 million of Euro bond issue with a coupon of 0.625 per cent. AusNet had $500 million of undrawn committed bank debt facilities, as at 14 February 2020.
Key highlights of the bond.
- It will mature at 10.5 years / 25 August 2030.
- The proceeds will be utilized to fund capital expenditure and refinance the current debt.
The Company has a robust investment-grade credit rating which is Moody’s Investor Service ‘A3’ and Standard & Poor’s ‘A-‘.
AusNet Services Group keeps a diversified debt maturity profile and generates its funds from different sources.
APA Group (ASX:APA)
APA delivered positive returns of 36.36 per cent and 3.07 per cent in one month and on YTD basis, as on 14 April 2020. The interim dividend of 23 cps was declared, which is 37.0291 per cent franked and up 7 per cent on the prior corresponding period.
The Company runs a vast network of gas infrastructure and pipelines, including the Orbost Gas Processing Plant. This plant is vital to the constant gas supply into south-east Australia.
On 23 March 2020, the Company mentioned that its essential field sites and critical facilities would remain open. This was to ensure continuous services to its clients and that its assets were safe. The Company enacted the work remotely as per government directions. APA assured that its Crisis Management Team which reports to Rob Wheals, APA’s CEO and Managing Director, would continue to examine the prevailing situation and update the market accordingly.
On 18 February 2020, APA released its half-year result for the period ended 31 December 2019. The snippet of the performance is mentioned below:
- Revenue excluding pass-through grew by 6.4 per cent on pcp basis, from $1,012.9 million to $1,077.8 million.
- EBITDA and net profit after tax increased by 6.9 per cent and 11.2 per cent, respectively.
- Operating cash flow $470.2 million to $511.9 million, an increase of 8.9 per cent.
The Company assured that it is on track to produce FY 2020 EBITDA guidance to lie within the range of $1,660 million to $1,690 million.
AGL Energy Limited (ASX:AGL)
AGL Energy Limited has been in operations for more than 180 years, contributing to Australia's electricity generation. AGL has a broad range of customer base of 36000, with 160000 in mobile/ broadband.
With a positive return of 12.84 per cent in the past one month as on 14 April 2020, the Company holds a resilient financial statement and a positive outlook midst of coronavirus. The Company has declared an interim dividend of 47 cents per share which is 80 per cent franked.
AGL announced a Customer Support Program for the ones suffering from financial stress due to COVID-19. Under this program, AGL had extended terms of payment and would suspend disconnections for financially impacted customers, until 31 July 2020. For supporting small businesses, AGL asked to make payment to their suppliers within 14 days.
AGL reaffirmed its FY 2020 guidance for the period ending 30 June 2020 as follows:
- Underlying profit after tax to be in the upper half of the range $780 million to $860 million.
- Despite the Loy Yang outage, market headwinds and higher depreciation costs, the Company aims to deliver a robust portfolio performance and customer growth.
- Operating headwinds comprises increasing fuel costs as legacy supply contracts mature and lower wholesale prices for electricity and renewable energy generation certificates. These operating headwinds are likely to persist for 2H FY 2020 and FY 2021.
The Company mentioned its strategic priorities, which are to deliver on transformation, growth and social license as discussed below.
- Growth: To expedite growth to fulfil the growing needs of the customer.
- Transformation: To refresh, reposition and reinvigorate AGL Energy Limited.
- Social Licence: To meet and surpass rising expectations of the community.
The Company’s operational goals encompass four main parameters as follows:
- People: As per the Employee Engagement Index, the figure of 70 per cent in 2016 dropped to 62 per cent in 2018 and 68 per cent in 2019. AGL aims to improve engagement towards FY 2016 level.
- Safety: As mentioned in 1H20 report, construction was completed with TIFR of 0.8. AGL intends to reduce the combined employee/contractor TIFR.
- Customers: To embark NPS ranking vs other tier-1 retailers.
- Financials: To meet financials as per LTIP targets and guidance.
AGL delivered decent results in half-year FY 2020 report for the period ended 31 December 2019. The key highlights are mentioned below:
As on 15 April 2020 (at 02:58 PM AEST), the three stocks were trading as follows:
- AST was trading at $1.780, an increase of 0.282 per cent compared to the previous close.
- APA was trading at $11.280, a decline of 1.053 per cent compared to the previous close.
- AGL was trading at $17.570, a decline of 1.014 per cent compared to the previous close.
