APA is the largest owner of natural gas transmission in Australia, contracting with energy retailers to provide transmission from gas production fields to major cities. Macquarie posted a good note on the regulated utility yesterday morning, upgrading the stock from neutral to outperform and increasing its price target by 60c to $9.40, implying ~12% upside in the share price along with a ~7% yield. The stock has been under pressure over the past 12 months, down 20%, on several headwinds, including higher costs, regulatory scrutiny on one of their assets, higher bond yields and some uncertainty around future investment.
However, pretty much all these pressures are easing and with the share price near 52-week lows, we continue to see value in APA as a defensive infrastructure holding, paying a sustainable and growing yield. Macquarie’s forecast shows a 6.8% yield expected this year, growing at 6-7% per annum for the next 3 years, with increasing franking kicking in 2025 and beyond.
- We remain bullish on APA, believing the risk/reward looks great below $8.50
MM remains long and bullish APA for income
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