APA Earnings: Higher Interest and Tax Costs Offset Solid EBITDA Growth

Narrow-moat APA Group’s underlying EBITDA increased 10% to AUD 1.89 billion in fiscal 2024, in line with our expectations and driven by tariff increases, acquisitions, and developments. However, free cash flow was flat because of higher interest and tax costs, while free cash flow per security fell 7% to AUD 84.6 cents because of dilution from equity raised to help fund the expensive Pilbara Energy acquisition. Guidance is for fiscal 2025 EBITDA of AUD 1.96 billion-AUD 2.02 billion, up 5% at the midpoint. We downgraded our EBITDA forecast by 3% to align with the range's midpoint, and slightly downgraded medium-term forecasts. The time value of money offsets the impact on our valuation. We maintain our AUD 9.30 per security fair value estimate and consider the stock modestly undervalued.