Shares of Australia's largest natural gas infrastructure business, APA Group (ASX: APA), today jumped 2% following the release of its half-yearly results this morning.
In the six months to 31 December 2014, operating cash flow jumped 35% to $280.4 million, whilst normalised net profit (adjusted for the sale of APA's stake in Envestra and other one-off significant items) was $111 million, down 8% compared to the prior corresponding period.
Earnings before interest, tax, depreciation and amortization, or EBITDA, was up 113% to $850 million. However EBITDA from continuing operations was up 9% to $401.3 million.
In line with previous guidance a distribution of 17.5 cents per security was declared, fully funded from normalised operating cash flow and applicable only to shares issued prior to the company's recent capital raising.
Commenting on the results APA Group Chairman, Mr Len Bleasel AM said, "APA's unrivalled gas infrastructure portfolio and industry expertise continue to drive growth and sustainable returns for security holders."
He added, "A number of recent expansion and enhancement projects have contributed to strong organic growth in the half year, while the profit recorded on the sale of our Envestra shareholding is now available for investment in projects that meet APA's strict criteria including the QCLNG Pipeline acquisition."
In December 2014, APA announced it had entered into an agreement with BG Group to acquire the $US5 billion Queensland Curtis LNG (QCLNG) Pipeline.
Following a recent $1.84 billion capital raising, APA Group had $2.4 billion of cash and committed undrawn facilities (excluding the $US4.1 billion syndicated bridge facility), with gearing at 44.5% and an interest cover ratio of 2.48, compared to 64.2% and 2.31 respectively in June 2014. Upon financial close of the QCLNG deal, APA's gearing will return to approximately 65%.
Managing Director Mick McCormack said, "We are focused on maintaining a strong balance sheet at all times and on ensuring all stakeholders understand our consistent long-term strategy. Stakeholder support for APA's recent capital initiatives has been very pleasing, and we are encouraged by the support shown for the QCLNG Pipeline acquisition."
Including the contribution of between $41 million and $83 million from the QCLNG project, APA Group expects statutory EBITDA for financial year 2015 to be in the range of $1,263 million to $1,320 million.
Should you buy APA Group shares?
APA Group is an appealing income stock because its earnings are very reliable and relatively easy to predict, a product of its durable competitive advantage. However, at today's share price, investors must be comfortable holding its shares for the ultra-long term because they appear close to fully priced.
Regular readers will know that early in 2014, our top analysts identified APA Group as a great way for investors to play the rise of Australia's LNG market. Safe to say, they were right – with its share price up 35% in the last 12 months!
