Please refer to page 18 for important disclosures and analyst certification, or on our website

www.macquarie.com/research/disclosures.

AUSTRALIA

AGL AU Outperform

Price (at 05:11, 16 Nov 2016 GMT) A$19.33

Valuation A$ 22.74 - DCF (WACC 6.4%, beta 0.8, ERP 5.0%, RFR 3.3%)

12-month target A$ 22.89

12-month TSR % +23.9

Volatility Index Low

GICS sector Utilities

Market cap A$m 13,009

30-day avg turnover A$m 39.2

Number shares on issue m 673.0

Investment fundamentals Year end 30 Jun 2016A 2017E 2018E 2019E

Revenue m 11,152 11,364 11,937 12,225 EBIT m 1,207 1,299 1,469 1,691 Reported profit m -408 784 909 1,062 Adjusted profit m 701 784 909 1,062 Gross cashflow m 1,180 1,268 1,397 1,569 CFPS ¢ 174.9 190.1 216.3 243.9

CFPS growth % 13.3 8.7 13.8 12.8 PGCFPS x 11.1 10.2 8.9 7.9 PGCFPS rel x 1.01 1.05 0.94 0.87 EPS adj ¢ 103.9 117.5 140.7 165.1 EPS adj growth % 7.8 13.1 19.8 17.3 PER adj x 18.6 16.4 13.7 11.7 PER rel x 1.03 1.05 0.91 0.80

Total DPS ¢ 68.0 90.0 105.0 123.0 Total div yield % 3.5 4.7 5.4 6.4 Franking % 100 100 100 100 ROA % 7.9 8.8 9.9 11.2 ROE % 8.4 10.0 11.6 13.2 EV/EBITDA x 9.4 8.7 7.8 7.0

Net debt/equity % 36.0 38.3 39.8 32.4 P/BV x 1.6 1.6 1.6 1.5

AGL AU vs ASX 100, & rec history

Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, November 2016

(all figures in AUD unless noted)

17 November 2016 Macquarie Securities (Australia) Limited

AGL Energy An unsigned moment Event

AGL hosted its 2016 Investor day on Monday.

Impact

Reiteration of guidance, commentary regarding stronger electricity prices and

the relatively fixed cost nature of AGL production bode well for the earnings

growth of the business. AGL is a 40TWh base load generator with 32TWh

exposed to retail or C&I. Raising gas costs, near-tem higher coal prices and

withdrawals are all driving the forward curve higher. AGL principally has a

fixed cost base per MWh, thus is leveraging the current market tightness.

It is this base generation and value that provides the wave of cashflow for

AGL to develop other opportunities. FY17 free cashflow is ~$0.4bn, but this

will grow in FY18 and FY19 as the forward prices roll through. Yet

expansionary capex is only $179-255m currently over the next three years.

Whilst AGL hinted at larger spends clarity only emerges when the retail

customer technology is proven; ie, promised signature customer moments.

In the interim the agile capital can be used for share buybacks without using

much of the $2bn of latent capacity.

AGL in retail announced a push into WA gas at up to ~$1,000/customer

acquisition cost; ie, $50-100m. Whilst gas may prove attractive it provides the

option to expand into electricity through acquisition (part of Synergy) or

organically and we suspect makes it harder for a fourth entrant into a small

market. Value creation, however, is trivial relative to the wholesale business.

Strategic investment in technology continued with EIP of $65m. The attraction

is not the investment itself albeit it should provide a 12% RoE, but the flow of

opportunities to broaden AGL retail offering, with the target to cement its

position in the market, with positive net promotor scores, as new technology

like batteries interrupt the market. AGL also highlighted a restructure of New

Energy, with solar and smart being allocated to the operating assets.

Finally AGL is considering importing LNG. Arguably we see it as a negotiation

position to get a better gas prices and additional volumes from the Australian

market albeit Newcastle cash storage indicates it is will to pursue alternatives.

Earnings and target price revision

FY17E/FY18E/FY19E change by -2.4%/0.44%/2.93%. PT unchanged.

Price catalyst

12-month price target: A$22.89 based on a DCF methodology.

Catalyst: Clarity around Alcoa, state-based renewable schemes.

Action and recommendation

Outperform. The fundamentals are that a rising electricity price will drive

earnings growth over the next four years. Much of management attention is

focused on using the cash windfall to pay shareholders but also to develop

potential growth as the markets are disrupted by new technology.

Macquarie Wealth Management AGL Energy

17 November 2016 2

Analysis

FY17 Guidance reiterated. AGL reiterated its FY17 guidance it flagged at its AGM. Namely,

underlying profit is expected to be between $720-800m. We remain at the top end of this range –

MRE$783m – which is above consensus of ~$764m. The primary driver of earnings growth

continues to be rising wholesale electricity prices and associated expanding wholesale electricity

margins. AGL reiterated its expectation for earnings to be weighted to 2H given a mild July/Aug,

impact of being caught short gas and potential disruption from ongoing Loy Yang negotiations.

While the commentary continues to be positive, AGL continues to caution the pace at which it will

recontract C&I and retail loads at higher prices. We will get further clarity on 1 December when the

Victorian industry publish their retail prices. One positive is network charges will continue to fall in

CY17 making it easier to pass on the rising wholesale prices.

The guidance captures no benefit from a closure of Hazelwood in March which could be an

incremental positive to 4Q17 providing upside to the upper end of the range. Longer term the

closure of Hazelwood and the effects on the market will have a longer term impact on the growth,

with ~$0.5bn – ie, 41% to EBIT to come through over the FY18-FY20 years.

Fig 1 AGL balance sheet metrics

Source: AGL, November 2016

Strong cash generation to continue. AGL’s strong cash position has been well highlighted with

>$400m of surplus cash being generated annually. In addition over the last few years AGL has

strengthened its balance sheet with ~$2b headroom post completion of asset sales and efficiency

programs. The key theme from the investor day was in this context AGL is now in a position to

expand away from traditional NEM expansion opportunities which are appearing more constrained

in a market that is clearly in transition.

Fig 2 AGL cashflow outlook

2017 2018 2019

Op cashflow $m 1,299 1,378 1,588 Maintenance $m -317 -385 -362 Dividend $m -588 -682 -787 Surplus Cashflow $m 395 310 440 Growth Capex $m 91 -255 -179 Share back $m -600 Yr end Balance sheet capacity $m 1,886 1,941 2,180

Source: Macquarie Research, November 2016

The benefit of stronger electricity pricing and sale of the Nyngan/Broken Hill wind farms results in

the only cash drain in FY17 with year-end balance sheet capacity at $1.9bn. By FY19, without

additional investments AGL will be in position to consider another share buyback in FY20.

Macquarie Wealth Management AGL Energy

17 November 2016 3

Growing opportunities.

AGL highlighted opportunities to grow and develop ancillary businesses. Underpinning this is the

wholesale pricing trend remaining intact with improving clarity around earnings growth and

cashflow. In addition the investment reflects capex associated with PARF investment remaining

capital light and traditional NEM expansion opportunities appearing more constrained. AGL

flagged a number of initiatives, with $700m of investment already underway.

PARF ($200m). Financial close has been reached on AGL selling Nyngan ($102MW) and

Broken Hill (53MW) solar plants as seed assets into the PARF fund. The sale is for $257m

which is at cost as expected and largely completes AGL’s $1b asset sale process. The PPA

price is $95/MWh (real) for the first five years, reducing by $10/MWh thereafter should PARF

exercise its offtake option. Our estimate is an IRR of ~9% based on a 95% operating margin

and 66:33 (2:1) debt to equity. Based on the last 12 months, the solar farm will contribute $16m

net cashflow to AGL, with zero capital invested – ie, +0.14% to groups ROE post the asset sale.

The clear takeaway from a PPA perspective, is the risk transfer is towards the infrastructure

holders, with AGL negotiated price step down providing some protection from technology

improvements into the future.

As previously flagged AGL expects Silverton (200MW, capacity factor of 40%) to be sold to

the fund in the coming months (end of 3Q17) while Coopers Gap (350MW) remains the other

key opportunity for the portfolio. Coopers Gap estimated cost is $500m (Qld government), with

construction targeted during FY18 and operation by FY20. At this stage we expect the equity

draw down of ~$30m in FY17, with residual $200m spread over the FY18 and FY19.

Digital transformation. ($300m) “Signature moments”. AGL gave some further clarity

around its $300m digital transformation program to FY19 it unveiled at the result. AGL’s is

adopting a tech like strategy to develop customer platforms to continue to drive customer

engagement and further differentiate its services. The $300m investment is justified through

a $40-50m reduction in back office costs and reduced cost to retain customers. The upside

is providing the improving digital contact with customers. It is worth noting ORG is pursuing a

similar strategy.

A key point AGL highlighted is it is seeking to be agile, namely product development is

reduced from 120 days (EV $1/day offer) to roughly five days. AGL knows it will be copied but

until its peers have similar technology platforms it will have a time in the market advantage.

Importantly being a leader in innovation becomes a differentiator and potentially the protector

from new threats like Telstra or Tesla. At this stage it is hard to measure how significant the

“30 signature moments” are as AGL is holding off until they are ready to launch. At this stage

the technology foundations still need to be invested in.

It is clear there will only be increasing opportunities in this space as batteries continue to

emerge, and power prices continue to increase which will only increase customer awareness.

AGL has flagged $50-100m enterprise resource planning upgrade to help facilitate the

digital strategy.

WA Retail

WA Retail . AGL unveiled aspirations of entering the WA retail market given attractiveness of

size and accessibility. Moreover, it highlighted it as a market which despite no retail presence

as being somewhat familiar. Specifically it is targeting ~100,000 customers over the next 24

months with a potential expenditure of $50-100m through FY17-19. Ironically while a different

and much more concentrated market this is a similar strategy to the Alinta’s east coast retail

strategy. Medium term, key opportunity will continue to emerge as retail competition opens up

in the SWIS market. In addition AGL can no doubt draw on its east coast success in

wholesale.

LNG import facility ($250-300m). AGL already has some optionality in its portfolio through

Iona, Coopers Energy heads of agreement and ability to recontract in Cooper and Gippsland

basin. Albeit, the east coast gas market continues to undergo a key transition as LNG projects

are up and running. Moreover, ~70% of gas demand by 2018 will be QLD based, re-contracting

is becoming increasingly shorter dated, supply is tightening while at the same time there

remains some regulatory uncertainty. Thus in a period of significant change AGL is adding to its

flexibility through a $17m investment in a potential LNG import facility. This is not a traditional

avenue for growth, albeit not material in short term.

Macquarie Wealth Management AGL Energy

17 November 2016 4

Technology led New Energy Investments. This remains a noticeable area of growth for

AGL given its continued investment. The majority of investments are not material which

arguably highlights the fragmentation of the space with AGL still very much in an experimental

phase. Total investment has been ~US$50m across projects such as Virtual power plant

($20m), electric car plan ($/day) and Energy Impact Fund.

Offshore. An interesting element was AGL not ruling out potential opportunities offshore.

Albeit within this context it highlighted an investment would not be necessarily asset based

– ie, developing power plants etc. – but one in which it could utilise its own business IP or

within business capability. Thus, any investment is likely to be technology based.

Fig 3 AGL growth opportunities.

Source: AGL, November 2016

Fig 4 Growth Capex ($m)

2017 2018 2019

Growth capex Retail Digital 75 125 100 WA 40 30 30 New Energy EIP 65 W/h Elec PARF 51 100 49 W/h Gas LNG import 17 Sub total 248 255 179 Divestments Solar -257 WF develop -60 Net growth capex -69 255 179

Source: Macquarie Research, November 2016

Macquarie Wealth Management AGL Energy

17 November 2016 5

WA Retail – why pursue the market?

The WA market is made up of dominant player Alinta, along with a smaller second player

Kleenheat, a subsidiary of Wesfarmer’s. The key reasons to pursue the market include:

Fundamentals are strong. The WA housing cycle has been favourable for the industry with

residential growth at ~2.7% pa over the last four years. The strength of the growth has come

from the economic boom associated with the mining sector. HIA (Housing Industry

Association) highlights dwellings falling to ~12,000 from the peak, but is still 20,000 pa, and

growing in FY18 and FY19. Thus the pace of growth has slowed, but there is no reversal.

The gas network forecasts by ATCO over the 2014-2019 regulatory period have growth

averaging 1.6%pa. With Iron Ore prices rebounding the potential is for growth to resume

Fig 5 HIA Dwelling forecasts

Source: HIA forecasts, (a) indicates actual, August 2016

In terms of volume, new housing demand tends to be smaller than existing households

reflecting the energy efficiency of both the household and the building. Over the last three

years, GJ/customer has dropped from +15.0GJ to ~14.5GJ/customer, which is down from

levels of ~20GJ/customer pre 2010, albeit a colder winter should improve usage (FY17). For

AGL the market is relatively small on a per customer basis, but would have a similar size to

SA and Qld in terms of total volumes at 10-11PJ to the retail customers, this is still attractive.

Fig 6 Measure of WA volume vs other states

Source: AGL, Origin Energy, Wesfarmers (Kleenheat), November 2016

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Macquarie Wealth Management AGL Energy

17 November 2016 6

Seasonality is high. As the chart following highlights the market tends to have high peak to

trough ratios, with distribution network demand at ~2.5:1 between summer and winter. This is

typically a barrier to entry. AGL will need to overcome this either through storage or getting

some level of load shape from the gas providers. AGL believe the load shape that gas

providers are offering should enable it to overcome this barrier, albeit like with Kleenheat, we

suspect there is an exposure to materially cool winters. Pipeline capacity is unlikely to be an

issue as the DBP already has surplus capacity.

Fig 7 Weather and WA load shape

HDD at pert airport Peak to trough ratio in ATCO distribution network

Source: BOM & WA Gas Bulletin board, October 2016

Regulated market price. Pricing in the WA market is regulated under the Energy

Coordination legislation. Unless otherwise approved, the gas prices are set annually in July,

by the minister with a default pricing component of CPI (minimum is zero) over the fixed and

variable users. Normally such a regulatory setting is a potential issue however ATCO network

prices are structured to fall over the FY15-FY19 period.

Fig 8 WA retail pricing

Retail 2013 2014 2015 2016 2017 2018 2019

Fixed $/day 0.1854 0.1973 0.2031 0.2058 0.2085 0.2123 0.2206 First 12 $/unit 0.1279 0.1361 0.1401 0.1419 0.1438 0.1419 0.1438 There after $/unit 0.1154 0.1228 0.1264 0.1281 0.1298 0.1281 0.1298 % chg % 8% 6% 2.9% 1.3% 1.3% 1.3% 1.3% Average usage GJ 14.0 14.0 14.0 13.7 13.4 13.7 13.4 Regulated revenue $m 600 617 616 610 614 623 Network charge $m -231 -234 -218 -196 -181 -167 Gross Margin pre gas $m 369 383 398 413 433 456 Gas & network costs $m -65 -68 -65 -63 -62 -62 Gross margin $m 304 315 334 351 371 394

* Note an unit = 3.6MJ of energy Source: WA Department of Finance, Macquarie Research, November 2016

As the table below sets out the gross margin pre gas costs is increasing from $369/customer

to $456/customer. On a post gas basis gross margins (based off spot pricing of gas) is $304m

growing to $394m over the coming year. This compares to AGL east coast gross margin of

~$212-232/per customer. Face value discount of 20% would ensure a profit per customer of

$232. Thus the falling gas costs and network discounting naturally makes the market

attractive.

The risk in the strategy is post 2019 the network charges increase, yet deregulation of the gas

price has not occurred. This creates a squeeze for all participants’ gross margins, with

discounting need to be reduced. This can be somewhat difficult given the market is a tuned to

discounting.

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Macquarie Wealth Management AGL Energy

17 November 2016 7

Fig 9 WA Natural gas price

Source: DMP, Macquarie Research, November 2016

Gas pricing is expected to fall. Additional domestic volume potentially sees some pricing

pressure on the domestic gas prices. AGL entry is timely to the extent producers want to sign.

Electricity deregulation. At some point post 1 July 2018 the retail electricity market is

proposed to be deregulated. This is an opportunity for AGL and having a presence in gas

accelerates the growth. AGL does not have generation in the market thus any entry into

electricity will need to be supported by acquisition of generation. The logical stepping stone is

the acquisition of Synergy or part thereof, the government owned generator and retailer.

Having a presence ensures brand awareness and ability to accelerate a dual fuel strategy

across both electricity and gas. From a strategic perspective a local presence possibly

strengthens AGL bidding position for on the government assets.

Kleenheat has already entered, AGL is number three.

In retail Kleenheat, a subsidiary Wesfarmers, entered the retail market from 2014. The gas market

is relatively simplistic, daily fee and usage charge, thus the differentiator is around price. Kleenheat

currently is offering a 10% discount on the usage element of the bill along with a $50 credit of

in-store voucher (Bunnings, Target or K-mart, Wesfarmers owner companies). This is ~9% annual

discount and an 8% upfront joining discount. On this basis the gross margin is $264/customer still

$30 ahead of AGL’s current average. In addition the term associated with the discounts are more

onerous with direct debt and monthly instalments, which reduces working capital and credit risk.

Fig 10 WA retail gas churn data

WA retail churn % on standard contracts

Source: AEMO, AER, QCA, ESCOSA, IPART, Macquarie Estimates, November 2016

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Macquarie Wealth Management AGL Energy

17 November 2016 8

AGL entry to the market is ~85% of the gas market is on a standard contract. NSW quickly shows

when AGL entered the market this dropped form 70% to 30% over six years, with a 30% drop in

the three years when competition was heightened. With network costs and gas costs falling, AGL

we expect will use price as the primary differentiator.

Timing of AGL entry is interesting. They have missed the primary churn time, namely post the

winter and the arrival of the bills in August and September. AGL must also lift absolute churn

across then industry. Based on historical rates it would take AGL 22 months, and assuming 100%

customer churn capture to achieve a 100,000 customer target. Given Kleenheat, and Alinta desire

to grow retain churn will need to double to levels similar to Victoria for AGL to achieve its target.

AGL – what does it mean?

AGL has flagged a cost of $50-100m to obtain the 100,000 customers. This costs is likely to be

made up of ~$20m developing the billing system for WA. SAP needs an upgrade model for the

new customers. We suspect this is also being built for the electricity rollout which will accelerate its

entry into the market. ~$10-20m in brand awareness. AGL does not have a brand name in WA

and finally customer acquisition, ie ~$50-70m or ~$500 per customer. AGL has indicated that it

plans to spread these costs over two years.

Fee competition periodically increases like in the east coast to 20% discounts as each attempt to

win/retain customers.

Fig 11 WA Gas market

Yr end June 2014 2015 2016 2017 2018 2019 2020

Alinta # 635,893 628,171 603,793 570,686 548,856 532,237 519,539 Kleenheat # 21,697 47,353 94,396 120,974 116,164 109,032 115,857 AGL # 25,000 63,000 98,280 100,354 Total market # 657,590 675,524 698,189 716,660 728,019 739,549 735,750 Growth % 2.7% 3.4% 2.6% 1.6% 1.6% -0.5% AGL share % 3.5% 8.7% 13.3% 13.6% Revenue

Regulated revenue $m 8 27 50 63 25% usage discount $m -2 -6 -11 -14 Network costs $m -2 -8 -13 -16 Gas Costs $m -1 -3 -5 -6 Gross margin $m 3 10 21 27 Customer costs ($85/customer) $m -1 -4 -7 -8 EBITDA $m 2 7 14 19 Depreciation $m -9 -18 -21 EBIT $m 2 -2 -4 -2 System capital $m 25 Customer acquisition costs $m 13 19 18 Funds Employed $m 38 48 47 26 Net cashflow $m -36 -12 -4 19

Source: AEMO, ERAWA, Macquarie Research, November 2016

Based on a 25% discount of the usage bill, and flat gas cost and slightly falling consumption, the

EBIT impacts of the move is likely to negligible until FY21 when the accelerated depreciation is

unwound. Thereafter earnings are likely to be in the order of ~$17m pa. But in perspective this is

trivial to AGL’s overall business which we anticipate will earn $1,765m in FY20.

An alternative way to consider this is the WA gas market is ~$675-700m. AGL action is likely to

see revenue in the market drop by ~$100m associated with competition. If AGL is successful it will

also take ~$50m of revenue, thus it is material market impact albeit this is likely to have occurred

anyway once deregulation emerged.

For AGL pay back is ~6-7 years on the project and provides an option to grow into electricity as

the WA market is deregulated. The latter is likely to be a far more significant investment.

Macquarie Wealth Management AGL Energy

17 November 2016 9

East Coast strategic – import facility

AGL promoted the potential of a LNG import facility into NSW, Victoria or South Australia. Key

elements AGL highlighted included:

$17m feasibility study (FEED). We believe this includes some costs for land acquisition.

$200-300m of potential development costs associated with the infrastructure for mooring the

FSRU and LNG ship. Hawaii Gas highlighted a similar cost of US$200m for the required

infrastructure

FSRU (Float Storage and regasification units) would then need to rented. Pricing appears to

suggest as a cost of $US$0.40/MCF – ie, A$0.55/GJ.

Decision is still 2 years away, with commencement of the project in 2021.

The basis for the concern is AGL believes there is a longer term shortage of gas in the Australian

market. AGL concern is with the LNG plants operating they will be the major draw on the

Australian gas fields, and the LNG plants development portfolios are focused on serving

themselves with limited over development at this stage. Whilst AGL is implying this outcome,

APLNG has recently agreed to a 300TJ/day pipeline from its Reedy Creek facility to Wallumbilla.

This gas we anticipate will be additional to APLNG contract demand – ie, 30% domestic market –

and could be sold to domestic or GLNG. APA itself is expecting development of the NSW and

Bowen basin gas fields in ~2023-2025 which provides volume.

Nonetheless AGL is not happy with the potential environment. However we see numerous issues

that emerge:

A FSRU is typically between 478-717t/day. There is one smaller ship namely Golar Spirt

(265TJ/day) whose charter expires in 2019. As AGL chart below shows that gas suppliers in

the south are potentially 1,500-1,600TJ/day. At the extreme this supplies 25-45% of the

Australian domestic demand. The facility would be nearly double the size of AGL current NSW

and Victorian markets.

Fig 12 Supply tightness

Source: AGL, November 2016

The infrastructure cost over ten years, assuming the facility was used at 75% of capacity, the

cost of the infrastructure is ~A$0.20/GJ. Combined with the cost of rental and conversion, the

cost of a regas facility is ~A$0.75/GJ. Such a cost is materially cheaper than the cost of

shipping gas from Wallumbilla to Victoria or NSW at ~$2/GJ. Thus at face value there is some

attraction. However the issue is the NSW market averages ~385TJ/day and Victoria 590/TJ.

Thus AGL would still need to ship gas to other east coast markets like SA, thus pipeline costs

will not be avoided for part of the load, mitigating the above advantage.

Socially it could be contentious. Choice of mooring location will be critical so it is not visual

pollution. Politically there is an element the gas which is being liquefied in Gladestone is being

shipped to Sydney or Melbourne, instead of coming through the pipelines.

Macquarie Wealth Management AGL Energy

17 November 2016 10

One of the potential attractions is the storage element. However AGL has addressed much of

its storage challenges on the East Coast with the development of Iona storage post 2021 and

the Newcastle gas storage. Thus the attraction of the storage element maybe somewhat

limited. Moreover having such storage capacity is likely to suppress the gas prices.

Influencing then outcome is likely to be the East Coast pipeline review and the access regime for

Eastern haul, which is still to be determined. Secondly willingness for the gas producers to sign

contracts to develop new fields. At this stage we think there is a low probability of the import

terminal, as there are alternatives available, and the time line to a final decision provides scope for

negotiation.

Market conditions remain favourable.

While much of the focus was on key growth opportunities, AGL still continues to benefit from

favourable market conditions. Within this context, AGL highlighted a range of opportunities within

a market that is clearly in “transition”.

Rising wholesale prices. This remains the biggest earnings driver. While the trajectory is clear,

management conservatism remains with apprehension about how aggressive price increases are

made. Thus despite the surging forward curves, management are reiterating a prolonged uplift. for

C&I and retail.

Vic Market. In light of recent events with respect to Hazelwood and potential closure of Portland

AGL gave some confidence of its expectation for the VIC forward curves to remain at the

~$65/MWh level, in line with NSW. With the Portland contract expiring in Aug-17 it is arguably the

most near term repricing event of the ~4TWh contract, albeit management again reflected

conservatism. AGL flagged some increasing comfort around being able to capture further market

share in the VIC market post a Hazelwood closure.

Fig 13 VIC and NSW forward curves ($/MWh)

Source: ASX, Macquarie Research, November 2016

Coal. AGL highlighted its attractive coal position. Approximately two years on from acquiring

Macquarie Generation plants, AGL highlighted the portfolio is performing strongly. This is being

underpinned by being able to capitalise on incremental generation to meet market demand

supported by additional stockpiling and contracted capacity. More specifically, AGL highlighted a

sweet spot of ~420-440MW for Liddell for optimal utilisation and optionality around LYA improving

utilisation post a Hazelwood closure.

To this extent we had expected in the case of a Portland closure LYA generation would decrease.

In this respect there is opportunity for LYA which is one of the lowest cost operators in the NEM to

increase output in the range of 1-2TWh. . Over medium term AGL is continuing to lobby for an

orderly exit of coal which it believes will promote a more rational pricing and investment response.

25

30

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Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16

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Vic

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Macquarie Wealth Management AGL Energy

17 November 2016 11

Fig 14 Cost position in the NEM

Source: AGL, Macquarie Research, November 2016

Rising input costs. Spot input costs are increasing to $55/MWh. AGL coal volume at ~11mt is

largely fixed, and only has ~2mt coming off contract, with 1.5mt in FY18 and 0.5mt in FY19. This

matches the rollover and step up in the Tomago contract, thus the impact of higher price is minor.

Moreover AGL competitors have larger portions of the coal books exposed to spot contracts,

which will drag pricing higher. Gas price at the ~$5.0-6.0/GJ is resulting in OCGT generation at

$60-70/MWh. With energy priced at the balance point, we have seen the structural step up in

electricity pricing.

Renewables - economics improving. Despite some uncertainty remaining, it is clear the

economics of renewable investment are improving. This remains a logical leading indicator to

underpin further investment. Albeit management highlighted that there remains some concern that

a potential overcrowding or overinvestment in this market could be detrimental to pricing. In saying

this, commentary was that discipline in the market has improved considerably. In this respect,

it appears a more conservative and incremental approach as seen with PARF is a logical

investment framework. Origin’s Stockyard Hill we anticipate will take a similar path.

Fig 15 LGC Market model – new LRET target

Source: AGL, November 2016

SA market. The dynamics in the SA market remain topical not only because of renewables but

also as a precursor to NEM as it continues to make its transition to renewables. Since the

announcement of the closure of Northern being brought forward (Jul-15), forward curves have

increased ~$50/MWh. Moreover, the state wide blackout last month continues to fuel the debate of

the need for more “firm” generation. For AGL this provides opportunity for its SA portfolio.

Torrens Island. Torrens Island continues to benefit from SA volatility. Torrents A will remain

an annual investment decision while Torrens B will be a source of optionality within the

portfolio with the possibility of changing the fuel type (both will need replacement in a decade).

Macquarie Wealth Management AGL Energy

17 November 2016 12

OCGT. AGL still has a development permit to provide flexibility to construct an 800MW open

cycle gas turbine. While this seems a logical investment, AGL has not sanctioned it.

Economics are questionable to the extent an interconnector potentially undermines the

economic and loss of volume (SA government) reduces AGL’s hedging load. Any third party

picking up the SA government load will most likely need new capacity or Pelican Point. At this

stage we believe AGL OCGT build will be deferred.

Demand. AGL highlighted the continued trend of stabilisation in demand. This is supported by

AEMO forecasts with expectation of modest growth in coming years. More broadly, the influx of

solar is beginning to normalise absent subsidies, while energy efficiency remains more in balance

with natural household growth. Whilst this is positive, the impact of elevated pricing and

technology may alter the trajectory over the coming three years as power prices step up ~40% for

NSW/VIC C&I customers.

Fig 16 C&I pricing outlook

Source: Energy Action, November 2016

Power data – September and October

We review the power generation data across the NEM for September and October. Broadly the

data highlights a continuation of the strong trend we have seen over the last ~12 months for AGL.

Key elements.

Volatility. Sep and Oct hours above $100/MWh totalled 105 and 133 hours. Whilst above the long

term trend this was somewhat lower than prior months. Moreover it was lowest since Nov-15 when

the strong trend emerged. The more normalised volatility likely reflects the more mild weather.

Within the states, SA remains the most volatile representing ~47% of total hours above $100MWh

across the NEM.

Macquarie Wealth Management AGL Energy

17 November 2016 13

Fig 17 NEM hours above $100/MWh

Source: AEMO, Macquarie Research, November 2016

Sep-Oct Demand. While volatility appears to have normalised over the last few months this has

come in a period in which demand was flat in Sep-16 and down 2% in October. Albeit, on a rolling

12-month basis NSW demand is flat while VIC is down ~0.5%, thus the decline is in line with

expectation and reflects milder weather as called out by AGL.

Fig 18 NEM quarterly demand

Source: AEMO, Macquarie Research, November 2016

Coal. Total generation was down 4.7% and 6.6% in September and October. Key driver of the

decline was lower generation from Liddell.

Black coal. Generation was down 6% in Sep and accelerated to 13% in Oct. The decline

accelerated in Oct-16 at 13%, albeit production across the two months were consistent.

Liddell as management indicated running a more conservative pricing path, Bayswater

generation was simply down. The offset is unhedged generation was receiving ~$18/MWh

more in FY16 than FY15. Overall we suspect in October like in 1Q16 income form MacGen

was slight down. The performance was in an environment where Eraring had a scheduled

maintenance shut down in October. This has run a little longer than scheduled, thus is likely to

have a positive influence to AGL in November.

Brown coal. Generation at LYA was down 2.4% in Sep and up 7.0% in October.

The disappointment however was pricing which was lower than prior periods at ~$35-40/MWh

vs 12-month average of ~$50/MWh.

0

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1,000

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FY12 FY13 FY14 FY15 FY16 FY17* (4mth)

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Wh

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0%

5%

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15%

Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16

Demand growth

NSW QLD SA VIC

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Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16

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$/MWhr

Macquarie Wealth Management AGL Energy

17 November 2016 14

Fig 19 Black and Brown coal production and pricing ($/MWh)

Source: AEMO, Macquarie Research, November 2016

Gas. AGL’s gas portfolio generation has normalised in October compared to May-Jul. Unlike with

the coal generators lower production is better as it suggests less need to use the Torrens as a

physical hedge. As the primary market is SA, where there was a system black event in October

it is hard to draw any clear conclusions. Broadly ORG and AGL spark spreads have averaged

$6-7/GJ, well down on the 6 month average of +$10/GJ.

Fig 20 AGL and ORG generation and spark spread

Source: AEMO, Macquarie Research, November 2016

Renewables. Wind bounced back in October with generation up 13% after a relatively flat

September. This is consistent with uplift seen across other portfolio’s ORG +29%, Infigen +62%.

Wind performance as a whole has been superior to past years, average generation up 8% for

AGL. Solar also continues to perform well with a capacity factor 31-32% in October, well above

the winter low of 18-20%

1.5 1.41.5 1.5 1.4 1.5 1.5

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AGL Production (TWh)

AGLCoal (Brown) AGLCoal (Black) AGLGas AGLHydro AGLWind AGLSolar Revenue ($m)

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MacGen production (LHS) "Eraring"

"Mt Piper" Price

Price ex carbon

NSW Black Coal Generation

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ORGgas

AGL spark spread

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GWhr$/gj

Macquarie Wealth Management AGL Energy

17 November 2016 15

Fig 21 Renewable generation

Source: AEMO, Macquarie Research, November 2016

0.00

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AGLHydro AGLSolar AGLWind AGLGas "Solar/Wind Ave price"

Macquarie Wealth Management AGL Energy

17 November 2016 16

Fig 22

Source: Company data, Macquarie Research, November 2016

A GL Energy 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Valuat io n

Consumer & Business $m 6,444 6,444 6,444 6,412 6,725 7,154 7,211 7,075 6,887 6,655 6,384 6,078

Wholesale $m 8,886 9,626 10,427 10,427 10,908 13,016 13,511 13,447 13,366 13,070 12,685 12,232

Upstream Gas $m 0 0 0 0 0 -170 -165 -159 -150 -139 -126 -109

New Energy $m -126 -90 -84 -81 -76 -68 -53

Energy Investments $m 161 145 136 123 213 226 251 242 233 224 213 201

Head office $m -2,251 -2,247 -2,243 -2,243 -2,269 -2,318 -2,308 -2,245 -2,173 -2,093 -2,003 -1,903

Net Debt $m -420 -418 -2,748 -3,067 -3,487 -3,841 -3,063 -2,994 -3,111 -2,668 -2,287 -1,722

Valuat io n $ m 12,820 13,550 12,016 11,652 12,091 14,111 15,342 15,276 14,963 14,962 14,786 14,708

per share $ 28.49 29.37 22.01 21.02 21.60 20.91 22.74 23.39 23.26 23.26 22.98 22.86

P ro f it and Lo ss 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

T o tal R evenue $ m 6,611 7,074 9,736 10,034 10,490 10,678 11,150 11,364 11,928 12,225 12,435 12,556

Growth % 9% 7% 38% 3% 5% 2% 4% 2% 5% 2% 2% 1%

EB IT D A (o perat ing)

Consumer $m 391 480 487 542 572 592 611

Business $m 75 69 76 79 82 85 89

Wholesale $m 1,211 1,313 1,368 1,474 1,673 1,757 1,788

New Energy $m 13 -3 -14 -7 -6 -4 -1

Central/Investments $m -185 -170 -152 -156 -160 -164 -168

EB IT D A (o perat ing) $ m 782 804 904 1,335 1,330 1,505 1,689 1,783 1,957 2,199 2,296 2,339

EB IT (o perat ing)

Consumer $m 361 332 321 399 423 466 482 510 538

Business $m 94 64 67 59 66 68 71 74 78

Wholesale $m 689 750 946 974 1,023 1,144 1,349 1,419 1,438

New Energy $m 26 21 2 -21 -29 -22 -20 -18 -15

Central/Investments $m -139 -163 -210 -200 -184 -188 -192 -196 -200

One offs $m -239 163 -529 -382 -25 -559 -1,467 0 0 0 0 0

EB IT (o perat ing) $ m 644 656 730 1,048 1,004 1,126 1,211 1,299 1,469 1,691 1,790 1,840

EB IT (statuto ry) $ m 406 819 201 666 979 567 -256 1,299 1,469 1,691 1,790 1,840

Net Interest $m -36 -26 -39 -203 -219 -230 -218 -193 -185 -188 -152 -155

P ro f it B efo re T ax $ m 370 794 163 463 760 337 -474 1,105 1,284 1,503 1,638 1,684

Tax expense $m

Continuing operations $m -93 -182 -197 -246 -219 -262 -287 -322 -375 -441 -481 -495

Discontinued operations $m 72 -53 149 170 29 143 354 0 0 0 0 0

Tax Expense $m -22 -235 -48 -75 -190 -119 67 -322 -375 -441 -481 -495

N et P ro f it A fter T ax $ m 348 559 115 388 570 218 -407 784 909 1062 1157 1189

Attributed Profit $m 348 559 115 388 570 218 -408 784 909 1062 1157 1189

Underlying pro f it $ m 504 439 483 597 562 630 701 784 909 1062 1157 1189

EPS (Underlying) ¢ 111.9 95.1 103.5 106.3 96.9 96.4 103.9 117.5 140.7 165.1 179.8 184.8

growth -14.4% -15.1% 8.9% 2.7% -8.9% -0.5% 7.8% 13.1% 19.8% 17.3% 8.9% 2.8%

PE x 17.3 20.4 18.7 17.9 20.0 20.1 18.7 16.5 13.8 11.8 10.8 10.5

DPS ¢ 59.0 60.0 61.0 63.0 63.0 64.0 68.0 90.0 105.0 123.0 134.0 138.0

Franking % 49% 52% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Dividend Yield % 3.0% 3.1% 3.1% 3.2% 3.2% 3.3% 3.5% 4.6% 5.4% 6.3% 6.9% 7.1%

EV : EBITDA x 11.7 11.6 13.1 10.3 11.1 11.0 9.6 8.9 8.0 6.9 6.4 6.1

EV : EBIT x 14.7 13.3 12.3 10.6 9.0 8.2 7.7

Net Debt $m 420 418 2,748 3,067 3,487 3,841 3,063 2,994 3,111 2,668 2,287 1,722

Net Debt : EBITDA (ex associates)x 0.5 0.5 3.0 2.3 2.6 2.6 1.8 1.7 1.6 1.2 1.0 0.7

RoFE % 10.4% 9.7% 7.4% 10.1% 9.1% 8.9% 11.0% 12.0% 13.4% 15.5% 16.7% 17.4%

EV/BV x 1.39 1.19 1.32 1.33 1.31 1.47 1.47 1.43 1.39 1.37 1.34

RoE % 6.0% 8.8% 1.6% 5.3% 7.5% 2.5% -5.1% 10.0% 11.6% 12.9% 13.7% 13.4%

P/BV x 1.41 1.48 1.47 1.43 1.48 1.65 1.62 1.60 1.51 1.48 1.41

C ashflo w

Operat ing C ash F lo w

EBITDA (inc associates) $m 782 802 904 1,335 1,330 1,505 1,689 1,783 1,957 2,199 2,296 2,339

Net Interest Paid $m -44 -39 -98 -214 -194 -192 -173 -193 -185 -188 -152 -155

Tax Paid $m -189 -1 -181 -71 -191 -147 -166 -203 -299 -340 -330 -341

Other (dec Working Capital) $m -159 -193 -159 -448 -246 -122 -164 -87 -96 -69 -76 -62

N et Operat ing C ashflo w $ m 390 569 467 602 699 1,044 1,186 1,299 1,377 1,601 1,738 1,780

N et Invest ing C ashflo w $ m -92 -419 -532 -550 -769 -2,175 81 -334 -594 -514 -418 -430

F inancing C ashflo w

Dividends $m -220 -268 -185 -213 -268 -344 -445 -477 -713 -643 -939 -785

Debt Changes $m -219 335 3,284 -1,213 595 157 -786 140 -21 -22 -473 -25

New Equity $m 36 116 890 0 1 1,216 0 -419 -188 0 0 0

Other (inc adj.) $m -39 -54 -2,860 -158 -340 -99 -43 0 0 0 0 0

N et F inancing C asf lo w $ m -441 123 1,125 -1,584 -12 924 -1,274 -756 -921 -665 -1,413 -810

N et C ashflo w $ m -143 273 1,060 -1,532 -82 -207 -7 209 -139 422 -92 540

B alance Sheet

A ssets

Cash $m 480 753 1,813 281 456 259 252 461 323 744 652 1,193

Tangible Assets $m 3,222 3,702 6,619 6,363 6,350 7,788 6,796 6,537 6,552 6,541 6,484 6,436

Intangible Assets $m 3,149 3,137 3,172 3,149 3,248 3,266 3,232 3,225 3,216 3,185 3,154 3,135

Other $m 1,839 2,103 3,134 3,573 4,080 4,520 4,324 4,528 4,723 4,842 4,918 4,980

T o tal A ssets $ m 8,691 9,696 14,738 13,366 14,134 15,833 14,604 14,751 14,814 15,312 15,208 15,744

Liabilit ies

Debt $m 901 1,171 4,561 3,348 3,943 4,100 3,315 3,455 3,434 3,412 2,939 2,915

Creditors $m 860 853 1,158 1,444 1,417 1,377 1,519 1,519 1,519 1,519 1,519 1,519

Provisions $m 231 256 398 365 207 647 713 713 713 713 713 713

Tax payable/DITL $m 43 167 11 155 49 86 102 102 102 102 102 102

Other $m 857 907 1,477 716 930 808 1,029 1,148 1,224 1,325 1,477 1,631

T o tal Liabilit ies $ m 2,891 3,354 7,606 6,027 6,546 7,018 6,678 6,937 6,992 7,072 6,750 6,880

N et A ssets $ m 5,800 6,342 7,133 7,339 7,588 8,815 7,926 7,813 7,822 8,240 8,458 8,864

Closing shares 450 461 546 554 560 675 675 653 643 643 643 643

R atio s

Sales Growth % 9.2% 7.0% 37.6% 3.1% 4.5% 1.8% 4.4% 1.9% 5.0% 2.5% 1.7% 1.0%

Operating Cost Growth % 10.3% 7.6% 40.9% -1.5% 5.3% 0.1% 3.1% 1.3% 4.1% 0.6% 1.1% 0.8%

EBITDA Growth % 2.2% 2.9% 12.4% 47.7% -0.4% 13.2% 12.2% 5.5% 9.8% 12.3% 4.4% 1.9%

D ivisio nal EB IT D A Gro wth

Consumer 22.8% 1.5% 11.2% 5.6% 3.6% 3.2%

Business -7.6% 9.4% 3.8% 4.1% 4.2% 4.1%

Wholesale 8.4% 4.2% 7.7% 13.5% 5.0% 1.8%

Macquarie Wealth Management AGL Energy

17 November 2016 17

Macquarie Quant View

The quant model currently holds a strong positive view on AGL Energy. The

strongest style exposure is Growth, indicating this stock has good historic

and/or forecast growth. Growth metrics focus on both top and bottom line

items. The weakest style exposure is Profitability, indicating this stock is not

efficiently converting investments to earnings; proxied by ratios like ROE or

ROA.

Displays where the

company’s ranked based on

the fundamental consensus

Price Target and

Macquarie’s Quantitative

Alpha model.

Two rankings: Local market

(Australia & NZ) and Global

sector (Utilities)

50/428 Global rank in

Utilities

% of BUY recommendations 57% (8/14)

Number of Price Target downgrades 0

Number of Price Target upgrades 5

Macquarie Alpha Model ranking Factors driving the Alpha Model

A list of comparable companies and their Macquarie Alpha model score

(higher is better).

For the comparable firms this chart shows the key underlying styles and their

contribution to the current overall Alpha score.

Macquarie Earnings Sentiment Indicator Drivers of Stock Return

The Macquarie Sentiment Indicator is an enhanced earnings revisions

signal that favours analysts who have more timely and higher conviction

revisions. Current score shown below.

Breakdown of 1 year total return (local currency) into returns from dividends, changes

in forward earnings estimates and the resulting change in earnings multiple.

What drove this Company in the last 5 years How it looks on the Alpha model

Which factor score has had the greatest correlation with the company’s

returns over the last 5 years.

A more granular view of the underlying style scores that drive the alpha (higher is

better) and the percentile rank relative to the sector and market.

Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com)

Fu

nd

am

en

tals

Quant

Local market rank Global sector rank

Attractive

-0.7

-0.5

-0.4

-0.1

0.6

1.0

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0

DUET Group

APA Group

AusNet Services

Spark Infrastructure Grp

ERM Power

AGL Energy

-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%

DUET Group

APA Group

AusNet Services

Spark Infrastructure Grp

ERM Power

AGL Energy

Valuations Growth Profitability Earnings

Momentum

Price

Momentum

Quality

0.2

-0.2

-0.4

0.9

-1.7

1.0

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0

DUET Group

APA Group

AusNet Services

Spark Infrastructure Grp

ERM Power

AGL Energy

-60% -40% -20% 0% 20% 40% 60%

DUET Group

APA Group

AusNet Services

Spark Infrastructure Grp

ERM Power

AGL Energy

Dividend Return Multiple Return Earnings Outlook 1Yr Total Return

-23%

-19%

-18%

-18%

19%

22%

22%

24%

-30% -20% -10% 0% 10% 20% 30%

⇐ Negatives Positives ⇒

Merton Score

Piotroski Score

3M Price Target Revisions…

Momentum 3 Month

Operating Accruals

Quick Ratio (Worldscope)

Price to Sales LTM

Dividend Yield NTM

0 1

Technicals & TradingRisk

LiquidityCapital & Funding

QualityPrice Momentum

Earnings MomentumProfitability

Growth

ValuationAlpha Model Score

-0.58 0.22

-0.05 0.12

0.12 0.06

0.39-0.20 0.54

0.12 1.01

0 1

Normalized

Score

0 50 100

Percentile relative

to sector(/428)

0 50 100

Percentile relative

to market(/423)

Macquarie Wealth Management AGL Energy

17 November 2016 18

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie – South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 30 September 2016

AU/NZ Asia RSA USA CA EUR

Outperform 47.26% 55.50% 38.46% 45.47% 59.09% 48.21% (for US coverage by MCUSA, 8.20% of stocks followed are investment banking clients)

Neutral 38.01% 29.31% 42.86% 48.77% 37.88% 36.79% (for US coverage by MCUSA, 8.25% of stocks followed are investment banking clients)

Underperform 14.73% 15.19% 18.68% 5.76% 3.03% 15.00% (for US coverage by MCUSA, 8.00% of stocks followed are investment banking clients)

AGL AU vs ASX 100, & rec history

(all figures in AUD currency unless noted)

Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, November 2016

12-month target price methodology

AGL AU: A$22.89 based on a DCF methodology

Company-specific disclosures: AGL AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of AGL Energy Limited's equity securities. Macquarie Capital (USA) Inc. or one of its affiliates, expects to receive or intends to seek compensation for investment banking services from AGL Energy Ltd in the next three months. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates has provided AGL Energy Ltd with investment advisory services in the past 12 months, for which it received compensation. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates has provided AGL Energy Ltd with investment advisory services in the past 24 months, for which it received compensation. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.

Date Stock Code (BBG code) Recommendation Target Price 03-Nov-2016 AGL AU Outperform A$22.89 28-Sep-2016 AGL AU Outperform A$20.12 12-Sep-2016 AGL AU Outperform A$20.04 11-Aug-2016 AGL AU Outperform A$20.50 29-Mar-2016 AGL AU Outperform A$20.23 21-May-2015 AGL AU Outperform A$16.00 05-Mar-2015 AGL AU Neutral A$15.15 12-Feb-2015 AGL AU Neutral A$15.38 23-Oct-2014 AGL AU Outperform A$15.20 03-Oct-2014 AGL AU Outperform A$15.99 12-Sep-2014 AGL AU Neutral A$15.28 21-Aug-2014 AGL AU Underperform A$14.58 17-Jul-2014 AGL AU Underperform A$14.51 06-Jun-2014 AGL AU Neutral A$15.33 27-Feb-2014 AGL AU Outperform A$15.56 30-Jan-2014 AGL AU Outperform A$16.10

Macquarie Wealth Management AGL Energy

17 November 2016 19

Target price risk disclosures: AGL AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures.

Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group’s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN 58 002 832 126, AFSL 238947, a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Wealth Management, a division of Macquarie Equities Limited ABN 41 002 574 923 AFSL 237504 ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited (“MENZ”) an NZX Firm. Macquarie Private Wealth’s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN 46 008 583 542, AFSL No. 237502) (“MBL”) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989. Apart from Macquarie Bank Limited ABN 46 008 583 542 (MBL), any MGL subsidiary noted in this research, , is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary’s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research contains general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group‘s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures © Macquarie Group

This publication was disseminated on 16 November 2016 at 14:32 UTC.