Adam Watson in the box seat – will Barrenjoey take a swing at APA?

APA Group’s share price has waned in the past year as gas remained out of favour.

APA Group boss Adam Watson was spotted in the Barrenjoey box at the women’s finals at the Australian Open tennis.

Could it be possible that he is being wooed by the Australian investment bank not just because APA wants to buy Zenith Energy but because it’s one of its top picks as a potential takeover target?

APA Group’s share price has waned in the past year as gas remained out of favour, but now that Donald Trump has been elected president and is relaxing rules surrounding the use of fossil fuels, perhaps the country’s largest gas pipeline owner will find some more favour.

The share price of APA Group is down 17 per cent in the past year and has declined more than 39 per cent in the past five years.

Based on the number of major infrastructure groups that have been privatised through buyouts in recent years, it’s clear they are in favour for super funds and private equity investors.

Its market value is $8.9bn and perhaps it is starting to look like good value.

One of the deterrents, though, will be its level of debt, which was at $12.2bn on a net basis at June.

Still asset sales could see it pay off some loans.

Electricity distribution assets could be sold, while most expect more corporate cost cuts to come.

And interest may be generated from the low Australian dollar.

APA Group, currently bidding for the $2bn Zenith Energy with help from Barrenjoey and Morgan Stanley, purchased Alinta Energy’s assets for $1.8bn in 2023. APA tapped the market to fund the acquisition of a solar farm, power stations and a gas pipeline, raising $675m at $8.50 per share – a lot higher than where it is today, at $6.86.

It also bought the interconnector between Tasmania and the mainland, Basslink, in 2022.

APA’s determination to buy more assets has been part of its strategy to become less carbon-intensive with its energy assets in its portfolio to appease climate change-wary investors.

Unisuper, which was APA’s largest investor, dumped $500m worth of the stock last year, amounting to 5.3 per cent and taking its holding down to less than 4 per cent.

APA Group has been a takeover target before, with Hong Kong-based CKI bidding $13bn in 2018, but the federal Treasurer disallowed the transaction.

The discussion around APA Group comes at a time that the market continues to search for outcomes from Trump’s push away from renewable energy.

One may be that less hydrogen energy gets developed in the US, although carbon abatements are still expected to feature strongly as part of a climate change play.

Carbon credit pricing has jumped, and one prediction is that carbon capture will become increasingly valuable.

A carbon credit represents one metric ton of carbon dioxide or carbon dioxide-equivalent emissions that have been mitigated by either preventing their release or removing existing gases from the atmosphere.

Additional reporting, The Wall Street Journal