Dhruvi Dhomse - Investor Desk

Investment Thesis:

High quality assets, which are difficult to replicate
Given 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
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 net zero operations emissions by 2050

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:

APA’s FY21 results underwhelming in a difficult trading environment with underlying EBITDA down -1.3% to $1.6bn
APA has ample liquidity with ~$1.9bn in cash and undrawn facilities, with management also confirming that it remains in discussions with Keppel Infrastructure to potentially acquire Basslink Pty Ltd, which owns and operates a 370km high voltage, direct current (HVDC) electricity interconnector that links the electricity grids of Victoria and Tasmania
APA’s U.S. acquisition remains elusive whilst the analysts commend management’s disciplined approach to valuation
With difficult to replicate infrastructure assets, quality resilient revenues and strong balance sheet, APA itself could be a target
With recent M&A in the infrastructure sector, it becomes obvious that APA is unlikely to find a bargain and will continue to be out bid on deals
Approximately 6% dividend yields are distributed by APA Group
Total capex was up +3.3% over pcp to $432.5m
Free Cash Flow of $901.9m, was down -5.7% over pcp, primarily due to a one-off distribution received and interest earned by APA from its investments in SEA Gas in FY20
Management invested over $280m in growth projects in FY21 which are expected to support revenue expansion in future years

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)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.