APA lifts annual earnings but warns of downturn ahead
APA Group lifts annual earnings 5pc but warns economic jitters ahead could mean lower gas volumes and project delays.
Gas pipeline giant APA Group has warned 2021 earnings could fall as economic jitters potentially lower gas volumes and Australian energy projects face delays.
APA has exposure to build a number of new pipelines connecting to major gas projects, including Santos’ $3.6bn Narrabri development and AGL Energy’s Crib Point LNG import terminal, and emerging gas basins including the Northern Territory’s Beetaloo.
However, the oil price crash and regulatory uncertainty has slowed sanctioning new investment and APA said there was an element of caution in the market.
“When you have a slowdown and you look at the decision making that customers face particularly when it comes to business confidence, there’s a general tendency to say ‘if I don’t have to make a decision today, I might put it off until tomorrow’,” APA chief executive Rob Wheals said. “But when you look at the fundamentals the east coast desperately needs that gas supply provided. You saw back at the time of the GFC as soon as you get your confidence back up and the market is starting to move, then those projects come back online. But projects subject to processes will take as long as they have to take.”
Earnings before interest, tax, depreciation and amortisation for 2019-20 increased 5.1 per cent to $1.653bn, at the top end of an updated $1.635bn-$1.655bn range given in April after delays to its Orbost gas plant on Victoria’s east coast, and marginally ahead of $1.643bn market consensus.
While the company’s mainstay pipeline business remained resilient through the pandemic, APA expects earnings within a $1.625bn to $1.665bn range for the 2021 fiscal year, meaning either flat or falling profits during the earnings period.
“Although APA is an essential part of the energy supply chain, no business is entirely immune from an economic downturn,” Mr Wheals said. “While our capacity contracts and regulated revenues mean that our business is somewhat resilient through economic cycles, APA’s revenues are still subject to recontracting decisions by customers, throughput volumes on certain assets, the timing of customer final investment decisions, as well as lower CPI across the contracts portfolio.”
APA noted its operating plan for 2020 only includes $10m of earnings from its delayed Orbost gas plant with practical completion not expected until June 30, 2021.
Annual profit after tax rose 10.1 per cent to $317m, beating consensus of $312m, while the Sydney-based company declared a final dividend of 27c per share, with the annual payout of 50c per share in line with consensus.
The Sydney-based gas operator plans to spend $1bn over the next two to three years on growth investment compared with $400m on average over the last five years. Investment this year is forecast at $250m, down from $463m in the 2020 financial year.
The company said the US remains “an attractive opportunity” for a potential deal. In May APA said it may pounce on distressed US assets as gas players buckle under heavy debt loads but warned a Democrat win in November’s election could hobble the development of new pipelines.
APA is conducting due diligence on US targets in a potential $2bn to $4bn deal as it looks to add a higher margin business to its regulated Australian earnings.
The oil market crash has increased pressure on the midstream sector including pipeline operators, processing facilities, gas gathering systems and LNG terminals, which could see companies place assets on the market to raise capital.
APA owns 15,000kms of gas pipelines worth $21bn across Australia and delivers half the nation’s gas along with stakes in storage facilities, power stations and wind and solar farms. APA shares fell 2.7 per cent on Tuesday to $10.57.
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