ASX-listed Energy Stocks Good For Diversifying Sectoral Risk?

  • Mar 30, 2020 AEDT
  • Team Kalkine
ASX-listed Energy Stocks Good For Diversifying Sectoral Risk?

ASX-listed energy stocks such as AGL Energy Limited (ASX:AGL), Viva Energy Limited (ASX:VEA), Woodside Petroleum Limited (ASX:WPL), and many more have been trading in a downtrend due to the dual impact of the coronavirus outbreak and falling crude oil demand along with it.

At present, there are a lot of noises around the energy stocks, that it might not be as much of a bad bet in the prevailing environment. However, currently, the investing community seems to be slightly inclined towards energy stocks holding exposure in the solar rooftop sector, as recently the sector has shown some resilience amidst the market crisis, with demand for rooftop solar panel climbing to a record high in February 2020.

 

           

 

Energy investors across the globe are also trying to park their investment in the field to alternative energy to safeguard their investment from the falling crude oil price, and post the news of solar PV installation reaching a record high took roots in the market, the renewable energy sector has become an honoured guest in the portfolio of energy enthusiasts.

To Know  More, Do Read: Rooftop Solar PVs Dodge the COVID-19 Impact as New Installations Set Records

ASX-listed Energy Stocks With Exposure In Solar Sector

The Group’s energy generation portfolio consists of Thermal, Renewables, Natural Gas, and other business units with Thermal unit primarily comprising of three main assets, i.e., a 4,665 megawatts Macquarie unit, consisting of the Bayswater and Liddell black coal power plants in New South Wales, a 2,210 megawatt Loy Yang unit, consisting of a brown coal mine and power plant in Victoria, and at last, a 1,280 megawatts Torrens unit, which is a gas power plant in South Australia.

The Renewables portfolio of the Company comprises of hydroelectric plants, wind stations, and solar prospect with a 786 megawatts of hydroelectric power stations in Victoria and New South Wales, a 924 megawatts of wind power generation in South Australia and Victoria, a 198 megawatts of wind power generation in New South Wales, a 440 megawatts of wind power generation in Queensland; and, a 155 megawatts of solar power in New South Wales.

Performance Comparison

The stock has delivered a YTD total return of -17.09 per cent, which is comparatively high as compared to the total return of -50.28 per cent provided by the S&P/ASX 200 Energy Index for the same period. However, AGL has outperformed the S&P/ASX 200 Index by8.30 per cent on a YTD basis, while the S&P/ASX Energy Index has relatively underperformed the S&P/ASX 200 Index by providing a benchmark-adjusted return of -32.70 per cent on a YTD basis.

On a YTD basis, the total return from S&P/ASX 200 stands at -26.65 per cent, -17.34 per cent for AGL, and -50.19 per cent for the S&P/ASX Energy Index.

 

           AGL and XEJ Relative Performance Against XJO (on a YTD basis)(Source: Thomson Reuters)

              AGL and XEJ Relative Performance Against XJO (on a YTD basis)(Source: Thomson Reuters)

 

The stock of the Company was trading at $16.560 (at 3:18 PM AEDT), upby 3.955 per cent, as on 30 March 2020.

IFN is an ASX-listed leading renewable energy player with energy portfolio consisting of renewable energy from its wind farm in New South Wales,South Australia, and Western Australia. The Company also outsources renewable energy from third party’s renewable energy project under its ‘Capital Lite’ strategy. IFN holds energy retailing licences for the NEM or National Electricity Market region of Queensland, New South Wales, Victoria, and South Australia.

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During the firsthalf of the financial year 2020, the Company managed to sell Renewable Energy Generation of 1,701 gigawatts hour, which remained 17 per cent up against the previous corresponding period (or pcp).

IFN reported net revenue of $134.3 million for the period, up by 13 per cent against pcp, while the contracted revenue reported by the Company stood 23 per cent higher against pcp at $116.3 million. The Company reported a net profit after tax of $26.2 million for the period, up by 24 per cent against pcp.

The Smithfield OCGT asset of the Company generated 15 gigawatts hour of energy in H1FY20, reflecting a 3% capacity factor, and in Q2FY20, Infigen’s 25 megawatts hour to 52 megawatts hours South Australia  Battery made its first revenue contribution, and the Company commenced a Power Purchase Agreement over the 21 megawattsToora Wind Farm.

The diversification of renewable energy portfolio in Victoria of the Company supports additional commercial and industrial customer contracting, as mapped by the Company under its Capital Lite growth strategy.

IFN plans to increase the volume of renewable energy sourced under the Capital Lite model, and the recent acquisition of the Smithfield OCGT has enabled 300-400 megawatts of additional renewable energy in New South Wales.

The Company plans to increase the levels of C&I Customer contracting, and the strategy would allow up to 75% of Infigen’s expanding renewable energy production to be sold under firm contracts.

IFN had recently proposed minor adjustments to its future outlook as electricity sales mix improves, and the Company receives a higher contribution from Commercial and Industrial customers; however, it anticipates a decline in anticipated Merchant revenues.

As a result, IFN suggests that now 81 per cent of expected renewable energy generation and 100 per cent of its expected LGCs are now contracted for FY20.

Performance Comparison

The stock has delivered a YTD total return of -37.28 per cent, and the outperformed the energy index on a YTD basis. However, IFR has underperformed the S&P/ASX 200 Index on a YTD basis.

 

              

                   IFN and XEJ Relative Performance Against XJO (on a YTD basis) (Source: Thomson Reuters)

 

Post seeing the relative performance, it could be inferred that the renewable energy stocks are performing well against the energy index; however, not every stock is performing relatively well against the S&P/ASX 200, suggesting that the exposure towards renewable energy might be able to diversify the sector risk, but the renewable energy stocks are well exposed to the market risk, inferred with the similar behaviour of trending downwards amidst the overall market fall.

The stock of the Company was trading at $0.430 (03:46 PM AEDT), up by 7.5 per cent, as on 30 March 2020.


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