AGK has upgraded its FY10 guidance to $420-430m from $390-420m, a 2-8% increase. Prior to this announcement, we and consensus were forecasting $422m.
AGK did not specify the drivers of the upgrade. Its only comment was "the revised guidance is based on unaudited figures for eleven months to 31 May 2010, and reflects the continued strong performance on AGL's underlying business"
We attribute the upgrade to better retail margins and lower wholesale electricity costs and cost to serve, timing of wind farm development fees, and slightly lower interest costs.
Earnings and Valuation Impact:
We have upgraded our earnings by 1-2%. We have increased our valuation and target price by 1% to $17.30 and $17.05 respectively.
Investment View:
Retain BUY. Our 12-month price target is $17.05 per share (based on 16x FY12 + $1 for CSG potential), equating to a total return of $23%.
FY10 underlying NPAT guidance upgraded to $420m-$430m For a second consecutive year, AGL has increased its full year NPAT guidance.
AGK Price at posting:
$13.90 Sentiment: Buy Disclosure: Held
