Your views on APA please

Hi Guys,

UBS downgraded APA to a sell last week having been fairly neutral (and right) for the past year. While APA has some challenges balancing weakening credit metrics with an increasingly ambitious growth plan, UBS decided the balance has tipped the wrong way and cut to a sell, largely due to an expected cut to the dividend. We disagree, and so do the majority of analysts (5 buys, 6 holds & 1 sell). Macquarie for example, see’s the worst case scenario being a flat dividend, while the company themselves have guided to 57cps for FY25, up 1.8% on FY24, but below the growth we had expected (around 3%). There are many examples of companies that don’t meet guidance, however, for the past 23 years, APA has grown distributions every year, so we think this track record holds weight.

Perhaps more importantly, on Thursday night UniSuper launched a $500 million block trade of APA, over 5% of the company. The shares were placed at $7.23, a 5.4% discount to yesterdays close.

The Australian Energy Regulator (AER) recently announced its draft decision not to recommend heavier South West QLD pipeline regulation. This is a positive outcome for APA, but UBS is concerned about broader funding and commercial challenges irrespective of the regulatory outcome. While APA took the UBS downgrade in its stride (released on the 9th Oct), a big tranche of stock placed via a seller led transaction at a 5% discount to market has seen the stock fall, and we suspect lots of fundies will now be ‘full’ of APA, creating a dearth of new buyers for a few weeks.

• We still like APA at current levels, but with rates likely to remain elevated, it may take time to regain market confidence – MM holds APA in its Active Income Portfolio.

chart

APA Group (APA)

LAST UPDATED 18/10/2024 13:58

Close

chart

APA Group (APA)

LAST UPDATED 18/10/2024 13:58