Hi Les,
We covered APA earlier in the week here and we thought it was a steady result. One aspect we didn’t highlight and should have, was around APA’s disclosure that the Australian Energy Regulator (AER) will conduct a review of the South West Queensland Pipeline (SWQP) considering whether market power is excessive and a default regulatory
access price is required. This is all fairly complex but part and parcel of life as a ‘regulated utility’ where-by returns on assets are set by a regulator. The question here is whether or not they’re over earnings on that asset, at ~8% we don’t think they are, but we’re not the regulator! We understand the review will take ~6 months.
That, along with the risk on attitude playing through the market could explain the weakness. This does not change our view on the stock at this stage, we continue to think APA represents great value at current levels for more defensive, income focused investors.