APA Group – The Board declared an interim distribution of 25cps and reaffirmed FY22 DPS of 53cps, up +3.9% over pcp

Investment Thesis:

High quality assets, which are difficult to replicate.
The quality of APA’s assets; the Company will always retain its M&A appeal. Last takeover bid (by CKI) was at $11.00 per share.
Attractive and growing distribution yield.
Highly credit worthy customers.
Currently assessing international opportunities – USA focus.
Organic growth pipeline of >$1.4bn.
Growth through acquisitions.
Diversified customer base by sector.
Largest owner of gas transmission pipelines in Australia.
Opportunity to grow its renewable business.
Management announced their ambition to achieve.

Key Risks:

Negative market/investor sentiment towards “bond-proxies”.
Future regulatory changes by pipeline regulators.
Large portion of businesses are exposed to the energy sector.
Infrastructure issues such as explosions or ruptures.
Adverse decision from COAG reviews transmission costs.
Shorter contract terms on existing capacity.

Key Highlights:

Revenue (excluding pass-through) increased +4.3% to $1,117.7m, with growth across all segments including Victorian Transmission System, Diamantina Power Station and Asset Management driven by favourable tariff escalation given exposure to Australian and US inflation indices.
Underlying opex increased +4.5% to $257.6m, driven by higher bidding costs associated with corporate development activities, higher insurance premiums, and enhancements across technology, partially offset by ongoing discipline in management of operations & maintenance.
Underlying EBITDA increased by +4.5% to $859.8m as higher revenue was partly offset by increased investments in capability and strategic projects.
NPAT (excluding significant items) declined -2.2%, as higher EBITDA and a decline in interest expense due to lower average interest costs due to liability management exercise completed in March 2021 was more than offset by higher D&A and tax expense. NPAT (including significant items) was $155.6m compared to loss of $15.5m in pcp, largely due to a non-cash impairment of $249.3m in pcp against the Orbost Gas Processing Plant.
FCF increased +22.6% to $515.1m, primarily due to higher earnings and lower interest paid.
Total capex increased +27% to $314.4m (growth capex down -41.7% and stay-in-business capex down -16%), primarily due to IT capex increasing +77.5% and corporate real estate capex of $7.9m.
The Board declared an interim distribution of 25cps (20.12cps from APT + 4.88cps from APTIT), up +4.2% over pcp and equating to payout ratio of 57.3%. APA reaffirmed FY22 DPS of 53cps, an increase of +3.9% over pcp.

Company Description:

APA Group Limited (APA) is a natural gas infrastructure company. The Company owns and/or operates gas transmission and distribution assets whose pipelines span every state and territory in mainland Australia. APA Group also holds minority interests in energy infrastructure enterprises. APA derives its revenue through a mix of regulated revenue, long-term negotiated contracts, asset management fees and investment earnings.

(Source: Banyantree)

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