Shares in APA Group (ASX: APA) were up around 6% at the open despite Australia’s largest listed gas infrastructure owner and operator revealing a 1H FY25 result with many moving parts, which at first glance didn’t look that flash.
The group’s first-half FY25 revenue was up 7% to $1.621 billion, which was a beat against market expectations.
While the group reported a 54% fall in statutory net profit, down from $74 million to $34 million, management attributed much of the result to the acquisition of the Pilbara Energy business and the associated 1H24 gain on remeasurement of APA’s previously held 88.2% interest in the Goldfields Gas Pipeline.
But beyond the numbers, what appears to have captured the market’s imagination today were the group’s plans to invest $75 million in increasing pipeline capacity to better cater for an expected shortfall on the east coast.
East Coast expansion
APA plans to invest $40 million expanding the east coast gas grid (ECGG), with the initial expansion including $25 million increasing the capacity of it Moomba to Sydney Ethane Pipeline (MSEP).
The group will invest $15 million in installing two pressure regulation skids to increase capacity in the summer months when pipeline maintenance is undertaken. Overall, APA expects increased capacity over the summer of 2025 and in 2026.
Secondly, APA plans to invest $35 million scoping new pipelines that could potentially connect new sources of gas in the Beetaloo in the Northern Territory and Surat Basin in Qld to the east coast market.
APA Group's CEO Adam Watson expects these projects to help secure Australia’s energy future which will need gas out to 2050 and beyond as a critical backup to renewables.
“These investments will help the Australian economy avoid the disastrous option of importing higher cost, higher emissions LNG, which will undermine domestic energy security and expose Australia’s energy market to global supply chains and prices,” said Watson.
“Over the last four years, we have invested more than ~$700 million in our East Coast Gas Grid including in our Stage 1 and 2 ECGG expansion projects, ensuring ~25% more gas has flowed to southern markets when needed. With customer support, this new plan can deliver the next material expansion to meet projected east coast demand out to 2032.”
Other notable 1H FY25 numbers
- 27 cents per share dividend was in line with forecast.
- Underlying pre-tax profit increased 9.1% to $1.02 billion.
- Free cash flow (FCF) grew by 3.6% to $552 million.
- Balance sheet remains strong at 10.7% FFO/net debt.
- FY25 distribution guidance of 57.0 cents per security, up 1.8% on FY24.
Outlook
During 1H FY25 the group’s $339 million capital investment in growth projects included completing A) construction of the Port Hedland Solar and Battery project, B) construction of the Kurri Kurri lateral pipeline project and C) undertaking early works on East Coast Gas Grid expansion projects.
In December the group executed an agreement to build, own and operate the Sturt Plateau Pipeline, which will ensure Beetaloo gas is available to support energy security in the Northern Territory.
Watson expects the group’s existing cash flow and strong balance sheet to provide the capacity to fund its $1.8 billion organic growth pipeline internally over the next three years.
“The result highlights the successful integration of the Pilbara business, with these new assets delivering $66 million in earnings for the half,” said Watson.
“Our growth pipeline in the Pilbara also continued to progress. Construction of the Port Hedland Solar and Battery Project was completed in December and we were awarded Priority Project status for two electricity transmission projects.”
The group reaffirmed its underlying earnings guidance for FY25 of $1,960 million – $2,020 million.
APA Group’s market cap is $8.8 billion, making it an ASX100 stock; the share price is down 15% in one year and down 1% year-to-date.
APA shares appear to be weak with little demand from investors. The 200-day moving average is downward sloping and the recent price action has also been weak.
Consensus is Hold.
This article does not constitute financial product advice. You should consider independent advice before making financial decisions.
