1. I don't think free cash per share is not misleading. A full period of contribution from Pilbara will also see higher interest costs, higher SIB capex and higher tax. I dont see how Pilbara is free cash accretive. The average cost of new debt issued in relation to acquisition was about 8% for annual debt cost of about $80m (based on $1bn debt for Pilbara). EBITDA for Pilbara is expected to be about $130m on annual basis in FY24. This leaves max contribution of $50m (130 less 80) to free cash before even accounting for SIB capex and tax. With over 100m new shares issued for Pilbara that $50m is less than 50c of free cash for each of those new shares compared to APA Group earning over 90c/share of free cash before the acquisition. Very happy to be corrected on this but I cant make the maths work.
2. What basis do you have to say gas generation volumes will increase? Forecasts from likes of AEMO have gas generation volumes falling.
3. What has fx got to do with the weaker credit metrics? APAs debt metrics are getting weaker as shown by lower FFO:debt in latest result.
4. APA could charge higher prices when contracts renew. But they might end up having to accept lower prices too. I wouldn't invest on assumption that they will be able to charge higher prices at same time as regulatory pressure is stepping up on pipelines and higher cost of living environment pushing back on companies looking to price gouge.
5. Increased capacity is fine if it is matched by increased earnings. But it hasnt matched earnings. And I wouldnt assume that there will be a "catch up" in earnings. Higher costs tend to be sticky in my view.
6. Higher capex is fine if matched be increased earnings. But it isnt. Earnings are not up 100% since FY22 while these capex items are. That is a drag on free cash.
7. It is still going to be a drag on free cash over next few years as it normalises. And will it normalise at prior levels or at a higher level?
APA Price at posting:
$7.88 Sentiment: Sell Disclosure: Not Held
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