AGL Energy has improved its full year profit guidance as rising electricity prices helped it returned to profitability in the first half of the financial year.
Australia's second-largest energy retailer made a net profit of $325 million in the six months to December 31, as gains from higher wholesale electricity prices and cost reductions helped offset a squeeze in gas margins.
It made a $449 million loss in the first half of the 2015/16 financial year due to impairment charges related to its exit from gas exploration and production.
AGL's underlying profit in the first half of 2016/17, which excludes the impact of significant items, was up almost four per cent to $389 million.
The company has strengthened its outlook, now forecasting a full year underlying profit in the top half of its $720 million to $800 million guidance range, a solid increase on the previous year's $701 million.
"The impact of rising wholesale electricity prices is expected to continue, although the impact will continue to be phased over time," chief executive Andy Vesey told investors.
Chief financial officer Brett Redman cautioned AGL would be limited in passing higher wholesale prices through to customers due to a competitive market.
Wholesale electricity prices peaked in recent months on the back of the impending closure of the Hazelwood coal fired power plant in Victoria, and continued operations for Alcoa's aluminium smelter in the state, creating a demand-supply imbalance.
Rising investments in wind and solar power to cut carbon emissions are also resulting in a gradual reduction of reliable, base-load coal fired capacity.
AGL continues to face headwinds in its gas portfolio as rising liquefied natural gas (LNG) exports drive up domestic gas prices.
AGL, which needs to buy gas to supply customers, said the margin squeeze will result in underlying earnings from the business falling by at least $100 million from the previous year.
The company said it is in the early stages of considering building an LNG import terminal in Australia, with a final decision expected by mid-2018.
AGL's results buoyed its shares, but failed to impress analysts.
"The result, while a pretty solid one, is unlikely to be enough to justify AGL's current valuation and therefore we would expect some short term consolidation in the shares," RBC Capital Markets analyst Paul Johnston said.
AGL shares gained $1.00, or 4.4 per cent, to a new record of $24.00. The shares have gained 44 per cent since mid-September.
AGL RETURNS TO FIRST HALF PROFIT
* Net profit of $325m vs net loss of $449m
* Revenue up 7.7pct to $6.03b
* Interim dividend up 9 cents to 41 cents per share, partially franked
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