APA Group: Focused on Growth

We maintain our fair value estimate for narrow-moat-rated APA Group of AUD 9.30 per share, and we consider it slightly undervalued at current prices. It offers an attractive distribution yield of about 6.5%, though distribution growth is expected to be muted as the firm reinvests cash flows to grow the business. Focus is increasingly on the renewable transition, but there are still opportunities in the gas pipeline network, given that gas is an important transition fuel. The main headwind is that its assets are typically of finite life. In particular, the Wallumbilla Gladstone Pipeline, which contributes one third of group EBITDA, will fall to practically zero in 2035 even if the customer continues using it, as it will be considered paid off. APA needs to continually invest to offset these long-term headwinds.