APA Group

APA Detail

Continued Increase in Distributions: APA Group (ASX: APA) owns and operates energy infrastructure assets and businesses.

Update on Final Distribution: The company recently announced an estimated final distribution of 27 cents per security, which will result in a total distribution of 50 cents per security for the year ended 30^th June 2020. This represents an estimated increase of 6.4% on the previous year. The company will confirm the actual amount of the final distribution and its tax deferred status following the finalisation of FY20 results, which are expected to be released on 26^th August 2020.

Strong Track Record of Paying Distributions (Source: Company Reports) 

Projects Update: The company recently entered into an agreement with Capricorn Metals Limited (ASX: CMM), for the transportation of gas from the Goldfields Gas Pipeline (GGP) to CMM’s Karlawinda Gold Project. Another key update on the Orbost Gas Processing Plant of Cooper Energy Limited (ASX: COE), owned and operated by APA Group, stated that commissioning activities at the plant since 20 May, has been directed to achieving a progressive sustained increase in plant output rates with the ultimate target being 68 Terajoules(TJ)/day. Output at the plant averaged 34 Terajoules/day from 20 May, with performance demonstrating the plant’s capability to maintain daily production of 35 TJ to 40 TJ.

1HFY20 Key Highlights: During the half-year ended 31^st December 2019, revenue and EBITDA increased by 6.4% and 6.9%, respectively, representing the first full period contribution from new growth assets. NPAT for the period increased by 11.2% and came in at $175 million.

1HFY20 Financials Highlights (Source: Company Reports)

Guidance: In April 2020, the company revised the EBITDA guidance for FY20 to incorporate the timing of commercial operations at the Orbost Gas Processing Plant. EBITDA for FY20 is expected to grow in the range of 3.8% - 5.2%, as compared to FY19 EBITDA of $1,574 million. Absolute EBITDA guidance for FY20 stands between $1,635 and $1,655 million. FY2020 growth capital expenditure is expected to around $250 million. Moreover, the company has a visibility of $1 billion of organic growth projects that are under discussion with customers for delivery over the next 2-3 years.

Key Risks: The company has a portfolio of significant assets and investments subject to economic regulation, with respect to the price that the company is allowed to charge for certain services. Therefore, changes in policy and regulations can impact APA’s business. Future earnings of the company are dependent on the extent of competition from new gas transportation pipelines. Moreover, gas prices and new technologies or gas swap contracts, can reduce demand levels for the company’s assets and may adversely affect its contracted revenue. 

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of the company has corrected by 4.11% over a period of the last 6 months and is currently inclined towards its 52-week high of $11.85. Being an essential service provider, the company will benefit from stable operating cash flows, which will help in maintaining the amount of total estimated distribution announced in the latest update. As at 31^st March 2020, cash and committed undrawn facilities with the company stood at $1.2 billion, which covers the only near-term debt repayment requirement of $300 million due this month. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of high single-digit upside (in percentage terms). Considering the above factors, we give a ‘Hold’ recommendation on the stock at the current market price of $10.85, down 1.004% on 10^th July 2020.

APA Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Infratil Limited

IFT Details

Equity Raising to Fund Growth: Infratil Limited (ASX: IFT) is a New Zealand based company, that owns renewable energy, airport, data & connectivity and social infrastructure businesses in growth sectors.

Update on Tilt Renewables: The company recently updated that Tilt Renewables Limited, an entity where IFT holds a substantial interest of 65%, revised it FY21 EBITDAF guidance to be in the range of A$65 million – A$80 million, representing a decline on the previous guidance of A$80 million – A$95 million, due to restrictions imposed on Dundonnell Wind Farm (DDWF) production.

Disclosure on Directors’ Interest: In another recent update, the company informed that Kirsty Mactaggar, a Director on the Board, acquired 4,582 ordinary shares in IFT. In addition, Peter Springford, another Director, acquired 3,516 ordinary shares in the company.

Completion of SPP: On 30^th June 2020, the company announced the completion of its NZ$50 million Share Purchase Plan, which forms the second component of its planned equity raising of NZ$300 million. The first component raised NZ$250 million via placement of new shares to new and existing institutional investors in both local and offshore markets. The proceeds from the equity raising will be utilised to improve balance sheet flexibility to fund growth investments and take advantage of new opportunities. 

FY20 Results Highlights: During the year ended 31^st March 2020, the company achieved a net surplus from continuing operations amounting to NZ$508.8 million, up 690.1% on the previous year. Underlying EBITDAF for the year came in at NZ$605.9 million, up 13.5% on the previous year, reflecting the changes in the portfolio and a growing contribution from data and communications infrastructure. Operating revenue for the period stood at NZ$1,368.7 million, as compared to NZ$1,442.2 million on FY19, reflecting a reduced period of contribution from Tilt’s Snowtown 2 wind farm, and the impact of lower wholesale electricity prices and lower generation volumes for Trustpower. The company exited the period with a strong liquidity position after executing a number of bank re-financings, with total bank facilities increasing to NZ$748 million.

FY20 Financial Highlights (Source: Company Reports)

Outlook: Due to continued uncertainty surrounding the impact of COVID-19, the company has not provided FY2021 Group earnings or dividend guidance at this stage. However, the company laid down EBITDAF guidance for the three components. Trustpower EBITDAF in FY21 is estimated to be between NZ$190 million and NZ$215 million. Tilt Renewables FY2021 EBITDAF guidance has now been revised to A$65 million – A$80 million and CDC Data Centres FY2021 EBITDAF guidance stands in the range of A$145 million to A$155 million. In the absence of a Group financial guidance, investors can base their confidence on the company’s significant capital investments which will generate income in FY21. Moreover, Infratil Limited’s overweight position in renewable energy generation and data infrastructure will help drive performance during a sustained slowdown in economic activity.

Key Risks: The company’s activities are exposed to energy price risk due to the impact of fluctuations in spot energy prices. The company meets its energy sales demand by purchasing energy on spot markets, physical deliveries and financial derivative contracts, exposing itself to the risk of fluctuations in the spot and forward price of energy. Moreover, the COVID-19 pandemic has led to increased uncertainty in relation to key management judgements, particularly in the valuation of property, plant and equipment and the carrying value of investment in associates.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/CF Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: The stock of the company gave positive returns of 10.24% in the last three months and is currently trading on the upper band of its 52-week trading range of $3.15 - $5.4. Over the last 24 months, the company’s investments have been focused on building scalable platforms with defensive characteristics and ongoing demand growth, which will provide a safety shield during these uncertain times. We have valued the stock using a Price to Cash Flow multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). Considering the performance in FY20 and a modest outlook, we give a ‘Hold’ recommendation on the stock at the current market price of $4.62, up 2.212% on 10^th July 2020.

IFT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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