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$27.87 1.46 (5.53%)
11/21/2008 3:45 PM

AGL Resources, Inc. (ATG)

CAPS Rating:
*****

An energy services holding company whose principal business is the distribution of natural gas in six states - Florida, Georgia, Maryland, New Jersey, Tennessee and Virginia.

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Avatar NtscrbEnergy (94.57) Submitted: 11/27/06 7:11 AM : Outperform Start Price: $34.44 ATG Score: 24.45

AGL Resources, Inc. operates in the natural gas distribution and marketing sector. With operations in six states, particularly the greater Atlanta, which happens to be one of the nation’s best places to operate a utility business, thanks to its growing population and increasing demand per customer.

The natural gas distribution industry in the US is expected to grow by 2.9% in 2007, due to increase in the natural gas consumption. The company will benefit from such rise in consumption, mainly due to its presence in the urban and comparatively more developed areas.

AGL is contractually attached with 12 regulated gas marketing companies, thus its Georgia operations are expected to garner financial stability. Further, these relations will prove as a shield against the bad-debt expenses as the sales made to these companies are sufficiently backed by collaterals or letter of credit.

The company’s policy is to charge fix rate each month to customers regardless of the gas usage. This keeps the company’s revenues stable in spite of any dip in demand either due to rise in gas prices or warm weather.

However, AGL is spending a substantial amount of cash to repair its distribution system and make it compliant with environmental regulation. It will need to file rate cases to recover the costs with state regulatory bodies. In the event of an unfavorable decision its earnings can experience a votality. Nevertheless, the geographical location can provide the stock a fair run in the time to come.

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Avatar NtscrbEnergy (94.57) Submitted: 4/23/07 5:18 AM

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It’s slow and steady for AGL Resources, Inc. The company’s growth strategy is focused on reducing cost and generating operational efficiency. It plans to achieve this by outsourcing its manufacturing call operations to India, thus resulting in annualized saving of $8 million; reduce customer attrition levels and reduce operational cost through investment in technological driven projects. Further, AGL is planning to expand its bread and butter, natural gas distribution business into west and Canadian regions to further expand in North American market. On the long-term front, the company is banking on Golden Triangle storage project near Beaumont, Texas near a nexus of Gulf Coast pipelines and expects it to be on line in early 2011.

The US natural gas distribution industry is expected to grow by 2.9% in 2007, due to increase in the natural gas consumption. The outlook for residential natural gas consumption remains strong and is expected to increase by 10.8% Y-o-Y in 2007, due to return of normal temperatures. Similarly, commercial and industrial sector consumption are expected to increase by 6.3% and 1.9%, respectively, in 2007 because of a return to normal weather, lower commercial prices, and growing industrial output. As a result, AGL will benefit from such rise in consumption, mainly due to its presence in the urban and comparatively more developed areas.

The company continues to generate 85% of earnings from its gas distribution companies, resulting in a history of steady cash flow. The company’s regulated operation spanning across five states help it to diversify regulatory risk and generate healthier returns on rate base compared to its competitor. In addition, AGL’s revenue decoupling mechanism helps it to shield earnings for both wholesale and retail gas distribution business. With conservative, yet effective growth strategy, steady cash flow streams and positive industry synergies, AGL demands attention.

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