APA sees bump in profits as CKI takeover continues
Gas pipeline company APA has seen an 11 per cent jump in profits as Hong Kong-based utility firm CKI continues its $13 billion takeover of the company.
APA’s net profit rose 11.8 per cent to $265 million.
The group saw a nominal increase in actual revenues, which rose 2.6 per cent to $2.4 billion.
APA chief executive Mick McCormack said the result marked the 18th straight year of "continued financial improvement." He also said it was the 18th year of consistent dividend payouts to shareholders.
He said the performance may be "as boring as batshit" but it is one of consistent improvement and returns.
The company's operating cashflows reached more than $1 billion for the first time, lifting 6 per cent from $973 million to $1.03 billion.
APA mostly passed over CKI's $11 a share takeover proposal, however, Mr McCormack warned of the dangers of further forced divestment of assets beyond those in Western Australia - particularly on the east coast - if CKI's bid is successful.
"Customers would be worse off under a break due to the increased price markups of gas," Mr McCormack said.
He said for APA is it 'business as usual' as the proposal progresses towards government review.
"It's on CKI there, and it's in the lap of the gods, the gods being the Australian Competition and Consumer Review, the Foreign Investment Review Board and the Critical Infrastructure Centre," Mr McCormack said.
"We don't want to preempt the agencies, but the advice we have is that this is a reasonable proposal and it could be approved."
Analysts said APA's performance was slightly above expectations, raising their valuation to $11 a share, demonstrating their faith in CKI's acquisition of the Australian company.
"Our target price of $11 a share is aligned to CKI indicative bid offer based on our review of historic ACCC and FIRB deals," Citi analyst James Byrne said.
He listed increasing levels of regulation as a potential risk for the company, as well as concerns that shareholders may reject CKI's bid, despite the lack of any competing offer.
"Additional downside risk to our target price is the shareholders rejecting the CKI bid as low," Mr Byrne said.
"Additionally, risk arises on the Foreign Investment Review Board rejecting the deal given security concerns over foreign ownership of supply in a tight domestic gas market. The upside risk to our target price is the potential emergence of higher bids.
"If the impact on the company from these factors proves greater or less than we anticipate, the stock could outperform or underperform our target price."
Despite CKI’s takeover bid, which APA's board supports unanimously, APA remains focused on the largest expansion in its history as it invests more than $1 billion on a range of energy infrastructure projects underwritten by existing long-term contracts.
Some of these projects include large solar farms in Queensland and Western Australia.
Mr McCormack said this growth comes even as the regulatory processes become more onerous.
“Despite having to manage regulatory reviews, the new arbitration and disclosure requirements, as well as the current offer by the CKI consortium to acquire APA, we have gotten on with growing our business and investing in more assets that will provide incremental revenue in the future,” Mr McCormack said.
This additional revenue is expected to be around $75 million in 2019, rising to more than $215 million annually by 2020.
He added that the company has also identified around $4 billion in additional growth projects over the next four to five years.
He said there would be additional costs passed on to consumers as gas passed state to state, as each of these new businesses would add their own operating costs on top of current rates.
"You'd see prices go up significantly," Mr McCormack said.
The company forecast an earnings guidance of between $1.55 billion and $1.58 billion.
APA is issuing a dividend of 45 cents, partially franked, payable on September 12.
APA's share price rose 0.7 per cent to hit $10.16 by midday.