We own AGL, and it is a trade that has gone from zero to hero and back to merely pretty good.

Now perhaps we should look at a broader range of prices, but the sell-off in context of weaker prices looks somewhat overdone. Generic baseload, September futures, these aren’t meaningfully lower post the last result.

Perhaps NSW is, but some states ahead, some behind.

Gas prices are about where they started, even as the path has been quite volatile.

AGL is a hedge for us: a) we think the pool price for electricity likely needs to be reasonably high to help fund the energy transmission (renewables might have a zero marginal cost, but someone still needs a return to build ’em, including the storage costs that come with intermittent power supply, and that return comes from charging a price that isn’t zero), and, b) if some wildly hot string of days/weeks overwhelms supply the possibility of enormous pricing is there. That’s the hedge bit.

Perhaps earnings are at risk, and we are simply looking at the wrong prices/futures curve, or perhaps the economics works in a way that we don’t appreciate (that one is entirely possible, no analyst in the market fully understands the flow of dollars from generation to retail and back again with hedges and working capital all in the mix).

But I don’t think so.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

Receive our investment insights

Something went wrong. Please check your entries and try again.