APA (ASX:APA) share price falls despite laying ‘foundation for future growth’

Here’s what’s weighing on the APA Group share price today.

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Key points

  • The APA Group share price opened 1.3% lower this morning before tumbling to $9.92
  • Its fall follows the release of the company's half year report 
  • During the half, the company's revenue and EBITDA increased 4%. As a result, the company has boosted its dividend by 4%

The APA Group (ASX: APA) share price is sliding after the company released its earnings for the first half of financial year 2021.

At the time of writing, the APA Group share price is $9.92, 2.27% lower than its previous close.

APA Group share price falls despite new acquisition play

  • Revenue of around $1.12 billion – a 4.3% increase on that of the first half of financial year 2021
  • Underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) of $859.8 million, up 4.5%
  • After-tax profit of $155.6 million, compared to the prior comparable period’s $15.5 million loss
  • Organic growth pipeline now exceeds $1.4 billion
  • Rights to acquire Basslink
  • 25 cent interim dividend – 4.2% higher than its previous interim dividend

Energy infrastructure company – best known for its gas transmissions lines – reported underlying EBITDA of $859.8 million, driven by revenue growth across all segments of its business.

Particularly strong growth was recorded from the Victorian Transmission System and Diamantina Power Station.

The company’s incomes were also boosted by tariff escalation.

Its surging post-tax profit was mostly due to a one-off non-cash impairment of $249.3 million recognised in the prior comparative period from the Orbost Gas Processing Plant.

Free cash flow for the half came to $515.1 million – an increase of 22.6%.

Additionally, APA Group reached a final investment decision on $150 million worth of growth projects in the half. The projects will support the expansion of its revenue expansion in future years.

The projects encompass gas pipelines and renewable energy generation.

The company’s results also included news of its plan to strategically invest in the senior secured debt of Basslink – a major energy link connecting Tasmania to the mainland, announced earlier this week.

Basslink was put into receivership in November 2021, little more than a month after APA Group confirmed it was in discussions to acquire the asset.

It will work alongside Hydro Tasmania, the State of Tasmania, the Australian Energy Regulator, and other stakeholders to convert Basslink into a regulated asset.

What else happened during the half?

During the first half of financial year 2021, the APA Group share price moved higher after it submitted a takeover offer for formerly-listed Ausnet Services.

The company’s bid was ultimately rejected in favour of an all-cash bid from Brookfield Asset Management Inc.

If that name sounds familiar, it’s because it recently offered to acquire AGL Energy Limited (ASX: AGL).

Additionally, during the half, APA Group put a plan to test if Victoria’s gas transmission system could be used to blend hydrogen to the Australian Energy Regulator.

What did management say?

APA Group CEO and managing director Rob Wheals commented on the company’s half year results, saying:

We are making good progress on our strategy and laying the foundation for future growth.

With coal generated electricity retiring over the coming decades, we remain highly confident in the critical role for gas as a source of timely, cost effective and secure energy. It is an essential companion for the ongoing growth in renewable energy. Gas is also the critical energy source in high heat and hard to abate sectors, supporting Australia’s industrial businesses.

At the same time, we have continued to invest in renewables, battery storage, microgrids, electricity transmission and the energy solutions of tomorrow.

What’s next?

The company has retained its financial year 2022 guidance of 53 cents per share of distributions. That’s a 3.9% increase on that of financial year 2021.

It also said it’s in a good position in the current environment, as almost all its contract revenues are linked to inflation.

Additionally, it will continue to invest in business development and systems and processes such as cloud or software-as-a-service technology solutions.

APA Group share price snapshot

Today’s fall included, the APA Group share price is 2.5% lower than it was at the start of 2021.

Though, it has gained 9% since this time last year.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended APA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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