Stock of the Day – APA Group (APA)

APA announced last week it will sell its 33% stake in Envestra into Cheung Kong Infrastructure’s $1.32/sh all-cash takeover offer. As a result, APA will realize proceeds of $784m, and will recongnize a pre-tax profit of $430m. APA stated it would use the proceeds to fund ongoing growth and investment projects over the coming 12 to 18 months. We note APA has previously guided to $400m pa in growth capex in the medium term. As a result, we conclude there are no plans for either a special dividend or share buyback at this stage. In our view this further underlines the strong growth profile of APA



Capital Projects Across Australia (Source – Company Reports)
 
APA has entered into two new long-term agreements with AngloGold Ashanti for the transportation of gas from Yarraloola to AngloGold’s Sunrise Dam and Tropicana gold mining operations. These two agreements underpin the construction of a new 292km gas transmission pipeline (East Goldfields Pipeline) that will connect to APA’s existing infrastructure. The pipeline will cost A$140m to build and completion is due by January 2016.



APA Fully Covered Distributions  (Source – Company Reports)

APA’s Western Australia business is driven by ongoing growth in demand for gas for both domestic use and in mining. Mining remains the key growth driver, and while investment levels may have peaked, miners are now looking for lower-cost development options and are also focusing on cost-cutting options. Despite the downturn in mining investment activity in Western Australia, APA still has a strong pipeline of investment opportunities both in Western Australia, and on the east coast. At the company’s investor day in June, Management talked of several opportunities for investment and maintained its outlook for group capex over of A$300-400m pa over the medium term.



APA Daily Chart (Source – Thomson Reuters)
The picture for east coast gas demand, while flattering at the headline level, has shifted lower in recent years on an ‘underlying’ domestic basis. The decline is driven by a number of factors: 1) The contraction in domestic consumption is driven by a combination of lower gas fired generation output and reduced energy use in manufacturing industry. We believe the stock is expensive at its current price and would review the stock at a later date.

---

Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.
Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).
The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.
Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.
The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide.