Hi Adam,
I have tempted but hold on so far. Mainly, this is because of an (may be illogical) issue that keeps bugging me. I can see some resemblances with the Telco sector (down on Vocus heaps) and I know that my entry was ill informed and high on Vocus. Second, I have moved to the UK and the competition and discounts on power and gas are unbelievable here. Basically, there are many smaller players and I am assuming that things in Australia are going to be pretty competitive with the retail sector.
Is it the good entry point (low price) of the stock that is making things less riskier here?"
@zaidi675,
Sure, in terms of the consumer-facing parts (i.e., Energy Retailing), there are some competitive similarities between the energy and the telco sector in Australia.
But, unlike with Telcos, who derive their revenues and profits almost exclusively from retailing their services, Retailing is a relatively small business stream in the context of an integrated energy business.
For example, AGL's power generation and wholesale business is - depending on upstream market conditions - between 5 and 10 times larger in EBIT terms than its Retailing businesses.
Secondly, while integrated power companies actually physically create the stuff that they sell (i.e., the units of energy, be it electricity or gas), telcos don't create the stuff they sell (i.e., the phone calls, texts and data) over their networks.
Third, while telco network capacity is essentially unlimited, the power sector in Australian is capacity constrained.
There has a been a policy-induced demand shock (mandated closure of base load power stations and prohibition of gas exploration in NSW during a period when east coast demand for gas surged due to the commissioning of some very large LNG plants in QLD) which has resulted in elevated profitability for players in the energy sector.
So, I see the energy sector is overwhelmingly different to the telco sector in Australia, for a number of distinctive reasons, but mainly due an issue of physical constraints when it comes to power generation.
And that is the key problem with investing in AGL at the moment: As the supply-demand tightness eases, investors are finding it difficult to know where the earnings of energy companies, such as AGL, will level out under a "normalised", balanced market environment.
I have duly exited my AGL position today.
(20min delay)
