APA Earnings: CPI-Linked Tariffs Drive Solid Result, but Regulator Back for Round 2

Narrow-moat APA Group's first-half fiscal 2024 underlying EBITDA increased 6% to AUD 930 million. Full-year guidance for AUD 1.87 billion-1.91 billion represents growth of 10% on last year at the midpoint. Overall, that is a solid result but slightly below our prior expectations. We downgrade our full-year EBITDA forecast by 2% to the middle of guidance. The impact is not material to our valuation, and we maintain our AUD 9.30 per security fair value estimate. APA is marginally undervalued at present. It offers an attractive 6.9% forecast yield, but distribution growth is stunted by rising debt costs and, longer term, by the end of the Wallumbilla Gladstone Pipeline contract in 2035, which contributes a third of EBITDA. We also see long-term headwinds from the renewable energy transition and the potential regulation of its best pipelines.