February 7, 2018 / 10:15 PM / in a year

UPDATE 2-Australia's AGL Energy first half profit jumps on soaring power prices

* H1 underlying profit up 27 pct to A$493 mln

* AGL still expects around 26 pct growth in annual profit

* CFO says sees wholesale power prices stabilising

* Shares down 1.9 pct after dropping to 14-month low (Adds CFO, analyst comments)

By Sonali Paul

MELBOURNE, Feb 8 (Reuters) - AGL Energy Ltd, Australia’s biggest power producer, reported a 27 percent rise in half-year underlying profit on Thursday on soaring electricity prices and stuck to its outlook for full year growth despite a price war for customers.

Rising power and gas prices have led politicians to turn up the heat on energy retailers to ease pressure on households, while customers have been shopping around for better deals.

But as the market’s biggest power generator, AGL’s gains from high wholesale power and gas prices have offset the pain of the retail price war.

“It’s always pleasing to report strong financial results, particularly in the environment that we’re in,” AGL Chief Financial Officer Brett Redman told Reuters.

Underlying profit for the six months ended Dec. 31 rose to A$493 million ($385 million) from A$389 million a year ago. Analysts at Citi had forecast an interim profit of A$500 million.

The company raised its half-year dividend to 54 cents a share from 41 cents a year ago.

AGL said it expects underlying profit for the year to June to land in the middle of its forecast range of A$940 million and A$1.04 billion, in line with analysts’ consensus forecast for a profit of A$1.02 billion.

Some investors who had bet the company would upgrade its forecast sent its shares down as much as 4.3 percent to a 14-month low in early trade. The shares last traded down 1.9 percent in a broader market down 0.4 percent.

Wholesale power prices doubled last summer to nearly A$250 a megawatt hour (MWh) in some states, as gas prices for generation soared, but have now dropped to between A$75 and A$150 per MWh. Redman said they are consolidating around that level now.

“What we wouldn’t expect is a big jump up in wholesale prices going forward,” he said in an interview.

AGL is looking to fill a looming gas supply shortfall in southeast Australia and break the grip of the market’s major gas suppliers, led by ExxonMobil Corp and BHP Billiton .

“There is a queue at our door a mile long both from suppliers of gas and suppliers of equipment that see us as a great counterparty and want to work with us,” Redman said.

“We continue to find that that business case is building.”

He said there is money to be made playing the arbitrage between weak LNG prices in the northern hemisphere summer which coincides with Australia’s winter, when gas prices are high.

$1 = 1.2789 Australian dollars Reporting by Sumeet Gaikwad in Bengaluru; Editing by Rosalba O'Brien and Richard Pullin

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