Popular stock coming off a quad top on a...

Popular stock coming off a quad top on a downgrade
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Australian Gas Light Company Ltd –

Earnings and recommendation Downgrade

Smith Barney research have reviewed earnings assumptions (seasonality) following company guidance. Smith Barney have also reviewed AGL’s tax rate assumptions and have updated for the Power Trust sale.

This review has resulted in a downgrade to SB’s profit forecasts for AGL.
SB’s AGL core NPAT has reduced 17% for 2003FY, 9% for 2004FY and 6% for 2005FY.
Smith barney’s AGL has now been downgraded from Outperform to In-Line.

1) Seasonality of earnings: AGL typically reports around 55% of its earnings in the first half of the year.
After the acquisition of Pulse we now assume around 60% of AGL’s earnings are recognized over this period. 2) Tax:
AGL reported tax expense of 34% for the Dec 02 half. SB now assume the company tax rate gradually reduces to 30% over the next couple of years (SB previously assumed the forward tax rate of 28%).

AGL has also accepted Trust Power Ltd’s pro-rata share buyback for its 20.5% shareholding in the company. Cash proceeds of A$135m (A$0.31 per AGL share) to be received by 30 June 2003. Loy Yang is still alive – the debt repayment has an extension.