The APA Group (ASX: APA) share price has actually dropped in 2021 so far. What could happen next for the business?
APA has been through a bit of volatility this year. The share price has been above $10 earlier in the year and as low as $8.20 at the end of October.
APA shares have dropped by 3% this year, but the business has seen a strong recovery in the last few weeks. Since the end of October 2021, the APA share price has gone up more than 15%.
Takeover attempt
APA has been trying to buy the Australian energy infrastructure business Ausnet Services Ltd (ASX: AST) which is a large electricity transmission business. APA submitted a non-binding indicative offer for AusNet on 21 September 2021.
Management of APA considers the AusNet business to be "highly attractive". But, AusNet has decided to proceed with the bid from Brookfield. While APA said it has received strong support from investors in both AusNet and APA for its proposed acquisition, APA said it will continue to remain "financially disciplined".
Coincidence or not, the APA share price has risen since the date of that announcement.
Basslink debt acquisition
But APA isn't giving up on making deals happen.
A couple of weeks ago, the business announced it had bought an interest in the debt of the business that is the borrowing entity for Basslink Pty Ltd, which owns and operates the 370km high voltage direct current electricity interconnector between Victoria and Tasmania.
Basslink is the only electricity interconnector between Tasmania and Mainland Australia. It provides two-way access to 500MW of electricity and is critical to the export of Tasmanian renewable energy to Australia's mainland.
Basslink Pty Ltd entered into voluntary administration and receivership on 12 November 2021.
APA is interested in buying Basslink from the receivership and managers. The face value of the debt that APA acquired an interest in is approximately $99 million, which was bought at a discount and funded from APA's existing debt facilities.
The acquisition of the debt interest in Basslink provides APA with the opportunity to work with the receivers and managers to put Basslink on a sustainable footing.
If APA is successful in acquiring Basslink, APA will work with Hydro Tasmania, the State of Tasmania, the Australian Energy Regulator and other key stakeholders to convert Basslink to a regulated asset.
APA's strategy is to expand its electricity transmission footprint and invest in renewable energy sources.
Is the APA share price a buy?
Morgans thinks that APA is a buy, with a price target of $9.98. The broker says that APA is benefiting from the fact that its contracts with customers are linked to CPI inflation, so this is helping the business more than the decline in demand because of more expensive gas prices.
The broker thinks APA is going to pay a distribution of $0.55 per share in FY23, which translates to a forward yield of 5.8%.
