A guiding light

Market analyst Regina Meani discusses AGL Energy (ASX:AGL).

AGL Energy has a proud Australian pioneering history stemming back to 1837 when The Australian Gas Light Company was formed in Sydney, and supplied town gas for the first public lighting of a street lamp in Sydney in 1841. The company was also a pioneer on the Australian Stock Exchange being the second company to take a listing.
In another innovative move the company is currently proposing a Demerger and if approved, existing Shareholders of AGL Energy will receive one share in AGL Australia for every one share in AGL Energy they hold on the applicable record date. AGL Energy Shareholders will retain their existing AGL Energy Shares and AGL Energy will be renamed “Accel Energy”.

The proposed demerger will be implemented via a Scheme of Arrangement. Shareholders will be asked to vote at an AGL Scheme Meeting in mid-June 2022. Further details will be provided in the Scheme Booklet, which is expected to be available to Shareholders in mid-May this year.

AGL Energy Chairman Peter Botten has said” The proposed demerger will be a catalyst for the potential realisation of shareholder value. It will create two industry leading companies with distinct value propositions. It will allow each business to be valued separately and more positively by the market on the basis of their own specific business fundamentals.

We have defined distinct dividend policies and capital structures for each company that will support both future growth and appropriate returns to shareholders, as both organisations pursue their commitment to responsibly decarbonise without impacting energy reliability and affordability.”

Ahead of the proposed demerger it is timely to look at the share price movements for AGL Energy (ASX: AGL $8.68). Between 1990 and 2007 the price enjoyed a strongly rising trend but following the peak at $16.97 in January 2007, momentum was drained and the steep angle of the trend difficult to maintain. The price fell severing the steep trend pushing sideways in a triangular fashion for several years which served to alleviate momentum and allow the price to swing up to obtain a higher peak at $28.47 in April 2017.

Experiencing extremely overbought conditions the price topped out at this level and broke down in February 2018. Sliding initially in a volatile fashion the downward momentum accelerated in early 2020 and the price plunged through into 2021 to find a bouncing point at $5.22 in September and then a double turning point at $5.10 later in November. A reversal phase developed and was completed with a breakaway gap on 10 January this year spurring the price to break the February 2020 downward spiral and rally to its first objective around $8.00.

This level was reached in late February with the price pausing and pulling back to consolidate before breaking higher to continue the new upward path. Divergent momentum has seen the price pullback from $8.84 on 19 April and oscillate in a tight range down to the $8.19-23 area and more churning may develop within the phase as the price builds the momentum to reach $9.00 -9.50 where another pause action may ensue.

Beyond this, as the consolidation expands the base, the stock will gain the potential to reach towards $10.50 and $12.50 and possibly much higher.

Over the near-term support is located in the $8.00-8.10 area. A drop through this level would indicate a deeper pullback action towards a potential buying opportunity at $7.40-50 with a backup/risk level at $7.20.

Note: the above levels will need to be re-identified once the Demerger has been actioned with the price adjusted with the appropriate ratio.

Ends