AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY) continues to show resilience in the face of multi-front attacks, not just surviving but thriving as similar companies, notably  fellow AE Portfolio member Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY), struggle, on the strength of well-timed acquisitions, efficient project development and solid customer service.

AGL is holding firm against regulatory headwinds, making good use of invested capital and adding retail customers despite the best, perhaps desperate, efforts of its main competitors. Financial numbers and operating metrics continue to affirm AGL’s status as a Conservative Holding, even as Origin Energy’s travails establish in dramatic relief why it’s an Aggressive Holding.

“Make wealth slowly” is a good way to describe AGL as an investment. The stock has trailed the broader S&P/Australian Securities Exchange 200 Index over the trailing 12 months, its 20.6 percent total return in local terms from March 15, 2012, through March 14, 2013, surpassed by the broader market’s 23.2 percent overall gain.

AGL, a charter member of the AE Portfolio, has posted a US dollar total return of 36.9 percent since Sept. 26, 2011, respectable but underperforming the S&P/ASX 200 (49.2 percent) and the S&P 500 (38.8 percent).

But over the five years ended March 14, 2013, AGL has generated a total return of 91.7 percent in local terms compared to the S&P/ASX 200. In US dollar terms, meanwhile, AGL is 112.2 percent to the positive, including dividends, versus a gain of 35.5 percent for the S&P 500.

The stock has surged from a closing price of AUD15.19 on the ASX on Feb. 26, the day before its fiscal 2013 first-half earnings announcement, to a close of AUD16.44 on March 14 in Sydney. It’s closed as high as AUD16.54 during this timeframe. AGL is now well off its Nov. 9, 2012, 12-month closing low of AUD13.72.

During the longer, five-year window AGL hasn’t cut its dividend but has raised it seven times, including the recently announced interim payout of AUD0.30 per share, which is higher by 6.7 percent than that declared in respect of fiscal 2012 first-half results.

And despite a difficult operating environment, AGL delivered robust results for the six months ended Dec. 31, 2012.

Management reported statutory net profit after tax (NPAT) of AUD364.7 million for the first half of fiscal 2013, a 211.7 percent increase over the first half of fiscal 2012.

The higher first-half number reflects changes in the fair value of electricity derivative contracts and also includes operating earnings from the Loy Yang A power plant acquired June 29, 2012.

AGL uses electricity derivatives to manage risk. Under Australian accounting standards many of these derivatives aren’t considered “effective hedges,” and so fair value movements are considered “book-to-profit,” creating significant volatility in statutory earnings.

Underlying profit, or NPAT adjusted for items and exclusive of non-cash derivatives and, according to AGL management, provides a better look at the health of the business, of AUD279.4 million was up 20 percent over the prior corresponding period. Underlying earnings before interest and taxation (EBIT) spiked by 44 percent to AUD512 million.

Statutory earnings per share (EPS) were AUD0.665, a 171.4 percent increase, while underlying EPS ticked up by 4.7 percent to AUD0.51, reflecting the impact of the equity component of the funding for the Loy Yang A acquisition.

Revenue for the period was up 37.5 percent to AUD4.97 billion, driven by a combination of significant pass-through of carbon and distribution costs combined with a large increase in electricity pool sales following the acquisition of Loy Yang A.

AGL’s retail customer base expanded by 56,700, or 1.6 percent, on strong growth in New South Wales electricity accounts, despite intense competition, including deep discounting by competitors, in the New South Wales gas and Victoria electricity markets.

The payout ratio for the current period, based on underlying EPS, was 58.8 percent.

AGL’s gearing ratio–or net debt as a percentage of total capitalization–was up slightly to 26.2 percent from 26.1 percent at the end of fiscal 2012. Interest costs increased following the extra debt taken on as part of the Loy Yang acquisition. Tax paid also increased, due to the company’s higher profit.

The company has no major debt maturities until July 2014.

Management reported strong growth on the Merchant side of the business, supported by the contribution from Loy Yang A to the company’s portfolio of generation assets, which includes the benefit of accrued transitional assistance payments to coal-fired plant under Australia’s recently enacted carbon tax. Management also noted an improvement in margins in its wholesale gas business and also an improvement in business customer operations.

Merchant EBIT surged by 82 percent to AUD453 million.

Owned or controlled assets posted a 100 percent increase in generation during the period, pushed higher as well by the Macarthur wind farm, which contributed 127.7 gigawatt hours of electricity since coming on line Sept. 30, 2012.

The improvement driven by Loy Yang is reflected in higher wholesale electricity margins, which were partly offset by higher Merchant operating costs.

A 2012 Queensland Competition Authority regulatory decision that substantially reduced the allowance for wholesale electricity costs in that state took a AUD29 million chunk out of Merchant results.

Wholesale gas volumes were higher compared to last year, which was marked by weaker winter weather. Business customers also used more gas.

Operating earnings before interest and taxation (EBIT) for the Retail segment was down by 23.5 percent from AUD178 million to AUD136 million, though timing differences that took a AUD68 million chunk out of the bottom line will reverse in the second half of fiscal 2013. Management flagged this dynamic at AGL’s October 2012 annual general meeting.

Underlying EBIT growth of 14.7 percent to AUD204 million excludes the impact of carbon and transfer price timing differences.

The first timing difference of AUD40 million is due to a cost on carbon being incurred from Jul. 1, 2012, while the price increases to recover the cost on carbon were phased in over July to October. This was expected, and the price increases were set to catch up full recovery in the year to June 30, 2013.

The second timing difference is an internal shift of segmental earnings between Retail and Merchant. Management had used for the South Australian Wholesale Electricity cost a lower transfer price in the first half and a different, higher transfer price in the second half. Management has shifted to a flat average transfer price for the year, which is the same approach used for the other states AGL serves. The change boosted Retail costs in the first half by AUD28 million but will decrease costs by AUD28 million in the second half.

Electricity volumes were relatively flat, with higher customer numbers offset by lower average consumption. Gas volumes rose with higher average demand compared to that due to milder winter weather during the first half of fiscal 2012.

Overall improvement is being driven by growth in New South Wales customers and general good price management. Bad and doubtful debts increased largely as a function of the increase in revenue. Depreciation and amortization were up because New South Wales customer acquisition costs are being amortized.

AGL continues to grow its New South Wales electricity customer base despite deep discounting by competitors; the state is now the company’s largest electricity customer base with over 680,000 customers, and that whole customer base has been acquired via organic growth.

The current run rate of 12,000 New South Wales net gains per month, combined with recent wins, suggests that AGL is comfortably en route to hitting its targeted net 400,000 to 500,000 growth in electricity customers by 2014.

AGL’s “churn” rate–or customer turnover–remains below industry on average but rose to 18.9 percent from 15.4 percent. Management indicated that a combination of retention and increased dual fuel focus has maintained the significant gap in churn versus the rest of the market. Average churn in Australia’s National Energy Market for the period was 23.2 percent.

The company’s cost to grow/retain per customer was flat versus the prior corresponding period at AUD68, very encouraging given the increased level of competition in the market.

Taking out timing differences, Retail gross margin per customer is tracking to a solid 9 percent year-over-year improvement. Operating efficiency–or operating expenses as a percentage of gross margin–was 46.8 percent on an underlying basis, flat with the prior corresponding period.

Higher gross margin was balanced by increased bad debt expenses that reflect, in turn, higher revenue and increased amortization driven by New South Wales customer acquisitions.

Cost-to-serve per account grew an average of 2.1 percent, with higher bad debt expenses offset by higher customer numbers. Labor and contractor costs increased by 6.5 percent, reflecting increased call traffic as customers phoned in to question higher bills. Labor rates moved mainly in line with inflation.

Operating cash flow was up by AUD492.4 million to AUD644.8 million due to improved earnings and a working capital benefit from carbon, as payment of 75 percent of the carbon liability related to Australia’s new tax on emissions isn’t required until the second half of the year.

Management reaffirmed previous guidance for full-year underlying NPAT of AUD590 million to AUD640 million and expects “continued growth” in the second half despite its forecast that energy demand will remain “subdued.”

Of particular note is that the Retail segment’s contribution for fiscal 2013 should surpass fiscal 2012 following the recovery of carbon costs and the reversal of transfer pricing in South Australia in the second half of the current year.

The range for second-half NPAT–AUD311 million to AUD361 million, based on the first-half result and management’s guidance range–builds in management’s expectation for more price volatility, in Queensland as well as in South Australia due to the latter’s recent decision to de-regulate electricity prices. It also reveals AGL’s conservatism.

Management expects that the adverse impact of recent price volatility in Queensland to be in the order of AUD10 million the second half. On a relative basis AGL looks to have come through largely unscathed. In light of the pre-tax impact of approximately AUD45 million on Origin Energy AGL’s AUD10 million looks a pittance.

At the same time, management noted during its half-yearly conference call “likely asset impairment” and future gas supply impacts as a result of rule changes currently under consideration by the state government in New South Wales.

Management also noted that it’s rolling back its “door knocking” strategy, part of its customer acquisition program, in favor of internal efforts. This move is likely to push up average cost to acquire in the short run. But in the long run ceasing an activity that had run its course and was beginning to wear on the public will help the brand. Once the transition to internal channels is complete costs will likely come down as well.

In fact early efforts at internalization of customer acquisition have borne fruit, with “dual fuel” customers rising by 17.6 percent during the first half to 1.67 million. This suggests cross-selling can succeed without face-to-face contact.

Based on the 6.7 percent dividend increase, AGL Energy is now a buy under USD17.25 on the ASX (approximately AUD17.93 based on the prevailing exchange rate) using the symbol AGK and on the US over-the-counter (OTC) market, using the symbol AGLNF.

AGL also trades on the US OTC market as an American Depositary Receipt (ADR) under the symbol AGLNY. AGL’s ADR–which represents one ASX-listed ordinary share–is also a buy under USD17.25.

AGL’s fiscal year runs from Jul. 1 to Jun. 30. The company reports full financial and operating results twice a year; it typically posts first-half results during the third week of February, with full fiscal-year numbers out in late August.

Interim dividends are usually declared in February along with first-half results. Final dividends are usually declared in August along with full fiscal-year results. The most recent interim dividend of AUD0.30 per share was declared Feb. 27, 2013; it will be paid Apr. 4, 2013, to shareholders of record as of Mar. 12, 2013. Shares traded “ex-dividend” on this declaration as of Mar. 5, 2013.

The final dividend of AUD0.32 in respect of fiscal 2011 second-half results was declared Aug. 22, 2012. It was paid Sept. 27, 2012, to shareholders of record on Sept. 5, 2012. It traded “ex-dividend” as of Aug. 30, 2012.

Dividends paid by AGL are “qualified” for US tax purposes. Based on the “fiscal cliff” compromise reached in Washington, DC, in early January dividends will be taxed at Bush-era rates of 5 percent to 15 percent for investors’ first USD450,000 a year of income for couples and USD400,000 for single filers. Above that the maximum tax rate is 20 percent.

Among the analysts who cover the stock eight rate it a “buy” according to Bloomberg’s standardization of brokerage house recommendation terminology, while seven rate the stock a “hold” and zero say “sell.” The average 12-month target price is AUD16.75, with a high of AUD18 and a low of AUD16.10.