28/01/2016: Why has AGL Energy not sold off like the rest of the energy stocks?

Scott Schuberg: Good afternoon members, welcome to Rivkin Virtually Live Local for Thursday the 28th of January, I'm Scott Schuberg joined by Shannon Rivkin.

Shannon Rivkin: Hi Scott.

Scott Schuberg: Hello mate.

Shannon Rivkin: How are you?

Scott Schuberg: Very well thank you. A reminder to everybody, this show contains general advice only. Andrew from New South Wales, just wondering if could explain why AGL Energy has not been sold off like the other energy stocks recently.

Shannon Rivkin: Yeah, you know, you always hear about AGL Energy, it used to be lumped up in the some category as Origin Energy because they were to some degree just big, unsexy energy retail business. Things have changed in recent years and the big thing for Origin of course was that they moved into the L&G space by borrowing a huge amount of money and building a huge L&G project fed with coals and gas in Queensland finishing just as oil and gas prices are plunging so I don't think they can be looked at all. I think that's probably what's prompted this question, is why has Origin gone so badly and AGL gone so well? They, in a very different boat, as in they are … knowing it vertically integrated retail as far as electricity retail, they're taking market share, business is going very well, on the same side the are all of a sudden able to buy oil and gas a lot cheaper than they were, but they have some production but it's far lower level, so I think overall the lower oil price has been a positive for them which has been very, very nice as far as being an alternative investment for Origin Energy.

Scott Schuberg: Yeah, slightly similar case to Caltex being a refiner and having lowering costs and being able to lag the drops in those prices to consumers. Electricity retail providers have that and much more, the correlation between the earnings and what they're paying to make their kilowatts or whatever is not as direct as oil refiners, but at the same time you don't get the ACCC screaming at them about their pricing when coal drops and gas prices drop, so they're happy to leave their retail prices as they are and benefit from falling energy costs which is a nice position to be in.

Shannon Rivkin: Yeah, and they've recognised the renewable energy trend early as well, so they've made quite a lot investments there and I think that's being appreciated by the market as well.