So far in what’s been an extremely eventful March, the ASX200 is down -8.9%, yet APA Group (APA) is up +3.7%, Telstra (TLS) +3.1%, while the local 3s have popped more than the equivalent of two rate hikes to 4.73%. Typically, when bond yields rise and expectations for RBA hikes increase, rate-sensitive stocks come under pressure. We saw this in late 2025/early 2026, when APA fell ~11% as yields moved from ~3.5% toward 4%, with market expectations swinging sharply from rate cuts to potential hikes. However, over the recent weeks, the defensive names have fared well from APA and TLS to “Woollies” and Coles as “safe” sustainable yield has triumphed over the economically sensitive miners.
We own APA in two of MM’s portfolios, with its forecast 6.1% fully franked yield, making it easy to hold Australia’s largest energy infrastructure business. Moving forward, we expect a steady but modest lift in the stock’s dividend. APA owns and operates gas pipelines, power assets and energy networks across Australia, and it’s important to note this largely regulated / contract-based business is not a direct beneficiary of the current conflict around Iran.
In terms of this portfolio, APA has meaningfully softened the impact on growth names from the war, “doing its job” to reduce Beta in times of deep uncertainty, which is all part of running a balanced portfolio. However, we have to weigh up if this defensive bid is likely to run out of steam through 2026, if the RBA does hike rates 2-3 times before Christmas as credit markets currently imply.
- Our view that Brent crude will reset back around $US80 in 2026 suggests the headwinds to APA from bond yields will improve from here.
In February APA delivered an in-line first-half result, with solid earnings growth and guidance maintained, important against a backdrop of rate uncertainty and regulatory sensitivity. EBITDA rose 7.6% to $1.09bn, distributions were in line, and FY26 guidance was reaffirmed. The result reinforced APA’s core appeal, stable cash flow, incremental growth and reliable income. In a market focused on certainty and valuation, its defensive earnings profile keeps it well positioned in MM’s Active Growth and Income portfolios.
- APA is on track to meet its $50m cost reduction target over FY26, driven mostly by reduced use of contractors. APA hinted that it may update on further cost-out targets at the FY26 results in Aug-26 – potential good news.
However, the company increased its FY26–28 organic capex target to $3bn, though it provided limited detail on the projects underpinning this uplift. While the larger pipeline could drive earnings growth, recent investments have underdelivered. At the same time, APA has committed to major capex projects, including expansions on its East Coast Grid and the Bulloo Interlink pipeline. While this reflects a proactive approach amid regulatory uncertainty, it increases commercial risk, particularly for long-life assets.
Although balance sheet flexibility has improved, the strategy diverges from the preference for contract-backed growth and tighter risk management around future investments, which would likely support investor confidence. Despite demand for defensive infrastructure exposure, the stock is no longer cheap relative to peers, with rising risks embedded in the growth outlook. No reason to exit yet, especially with the appealing yield, but as the James Bond title goes – “Never say never again.”
- We plan to give APA the benefit of the doubt at this stage of the cycle – MM holds APA in its Active Growth Portfolio and Active Income Portfolio.
MM is long and bullish APA around $9.50
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