APA Group (ASX:APA) Wins Pipeline Approval On Questions Over Valuation

APA Group (ASX:APA) has received Australian Energy Regulator approval for an A$213 million expansion of its South West Pipeline in Victoria. The project is tied directly to projected peak day gas shortfalls from 2029.

See our latest analysis for APA Group.

APA Group’s latest approval comes after a period where its share price has shown steadier progress, with a year to date share price return of 13.72% and a 1 year total shareholder return of 30.53%, indicating that momentum has been building over a longer horizon.

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After a strong 1 year total return and fresh approval for more regulated growth, APA Group now sits at an interesting point. Does the current price still leave enough upside in the risk reward trade off for new buyers?

Most Popular Narrative: 10.3% Overvalued

APA Group last closed at A$10.28, compared with a most followed fair value estimate of A$9.32. This estimate is based on a 7.0% discount rate and detailed earnings forecasts.

The analysts have a consensus price target of A$9.32 for APA Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$11.1, and the most bearish reporting a price target of just A$7.96.

Read the complete narrative.

Want to see what sits behind that A$9.32 fair value call? The narrative leans on firm revenue growth, sharply higher margins and a much lower future earnings multiple.

Result: Fair Value of A$9.32 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, investors in APA Group still need to weigh tighter climate policy or weaker long term gas demand, as these factors could pressure pipeline utilisation and future contract terms.

Find out about the key risks to this APA Group narrative.

Another View: What The SWS DCF Model Says About APA Group

The analyst consensus points to APA Group trading around 10% above a fair value of A$9.32, yet the Simply Wall St DCF model lands in a very different place, with an estimate of A$25.83 per security. On that basis, the current A$10.28 price screens as heavily undervalued.

The gap between an overvalued analyst target and a much higher DCF outcome raises a practical question for you: which set of assumptions about future cash flows and discount rates feels more realistic for APA Group?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out APA Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 7 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With mixed signals on value and sentiment around both risks and rewards for APA Group, take a moment to review the data and sharpen your stance by weighing the 3 key rewards and 2 important warning signs.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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