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- 13 January 2011
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Re: APA - Australian Pipeline
Long on a dividend momentum strategy, no fundamentals involved
Long on a dividend momentum strategy, no fundamentals involved
Long in a gas pipeline company with the oil price in near complete collapse, like one thing has nothing to do with the other.
Reaper, I too have some LONG APA. I managed to get out on the open this morning for a cheeky price.
But I am still awaiting the response from my brokeras to what is happening with the entitlements. I hope they give me the institutional bookbuild price...the retail will take until late January to get paid out as far as I understand.
Long in a gas pipeline company with the oil price in near complete collapse, like one thing has nothing to do with the other.
I'm long on this via CFD's and have been allocated APA Group Nil-Paid rights...what on earth can I actually do with this?
Call your CFD provider and ask about the process and deadline for exercising your rights. The rights are not tradable in the market, but are renounceable. So if you do nothing make sure your provider pays you the clearing bookbuild price.
So apparently the deadline was the 11th and now they are refusing to either allocate any additional units or to pay out the entitlement bookbuild price.
Pretty sh!tty about this and haven't given up....this is what I was told:
"In the event of entitlement offers our prime broker will assign a deadline for us to respond to the offers and if no actions are taken before the notification deadline, that means we're giving up the offer hence we wouldn't receive any cash or shares"
Nice to know that they didn't inform me of this deadline which is in advance to any deadline provided by the APA announcement. I figured taking no action would result in the bookbuild price....hmmmmmm. Another headache to deal with. Maybe its time to change broker!
Who are you with VS? I'm going to try and ring IG at lunch today and see what they say
Pretty sure they mean 11th Jan. If not you can prob sue/complain to ombudsman.
A deadline of 11th Dec would be ridiculously onerous. 1 day after announcement, stock hasnt even settled yet!
Just got an email from IG, you can apply to take up the rights, deadline 12/01/15, or do nothing and receive some value depending on the retail book build.
I don't know if you are wrong or right but a ponzi scheme is illegal in Australia.
Personally, I'd be a bit cautious about suggesting a company is engaging in illegal activity on a public forum unless I had very firm evidence to that effect.
Just my thoughts.
This company is a complete Ponzi Scheme.
I hope I am wrong, well not really... but can someone tell me I am wrong?
I've looked at its past four years, compared it a similarly capital intensive business, and this APA is one big massive pile of Ponzi.
Will make my case soon.
Alright, I'll take that back. It would be hard to prove, and there is no need to name what APA is doing... But the effect is the same. Not a ponzi, management are honest, but the company itself cannot operate the way it is without borrowing more and more money AND raising new capital from shareholders.
Its current operating cash flow just cannot support both its dividends and its debt obligations. Dividends will have to go and slight less debt or equity will be needed - or sale of assets. To keep doing what it's doing, while may not be illegal, will send in the administrators.
It's operating cash flow is higher than dividends, I can't see where the Ponzi is.
Also, it's capital ex, is mostly growth, only a small amount of its cap ex is stay in business cap ex, so its not as cap ex heavy as you might think.
Dividends if at their "at least" 38cents is $423M.
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Interests I guestimate at $484M, APA itself advise it'd be $500 to 510.
Add on top the $977M (there about) loan repayment [8.8 year average maturity on $8.6B loan]... and it will need to raise or borrow about $1100M or sell assets or cut divi and borrow less.
That and having compare its past 4 years against Buffett's Burlington Northern rails... APA kinda suck
I have it at less than $270Million, and some of that will be retained due to the dividend reinvestment plan. (where are you getting $423M from?)
The Interest that they pay is already deducted, it doesn't come out of the $550M of free cash flow.
They have undrawn debt facilities, to cover that any given years debt payment, and they will probably just keep rolling over debt.
I think debt will be a permanent part of the capital structure at apa, its one of those businesses that are really well suited to having bond holders as part of its capital base.
Well I own Burlington Northern also, through my Berkshire holding.
But Buffet likes Gas piplines too , mid American and Berkshire hathaway energy own a few.
I don't see the suck, I don't mind holding gas pipelines.
They have 1,114,307,369 shares outstanding. At the 38 cents it works out to $423M
I think DRP has been cancelled.
See p.3 of latest dividend notice from them. Page 2 said they have DRP, but p.3 said it does not apply to this March divvy.
But true that they could simply switch it back and retain some cash. But also true that doing that simply mean they need to retain cash...
Personally I think they ought to switch it on but my guess is they want to keep up appearances.
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I think your $550 refers to the Net Operating Cash flow. Which is true. APA adjusted/"normalised" it to $544M from memory... but yes that takes out the Interests and leave the DA and Taxes - it does not seem to be paying tax either, which I guess is a good thing ?
Take away interests of $500M, dividends of $423, growth capex comitted of $210; stay in biz capex of around $70 and APA is in trouble.
If APA could keep borrowing and keep raising capital and do some minor selling of certain "non-core" assets... yea it could keep up this business for a few more years longer. But given its size, monopoly and compeitive regulations will make it difficult to keep "expanding".
.So I asked a simple question: Could APA survive as is if it can no longer borrow and raise cash?
No it cannot
BNSF did borrow money, and is capital intensive, and yes it roll over its debt year on year.
But I've looked at its operations and BNSF does the borrowing and the operating in a way you'd expect a normal, profitable, well managed company does. APA isn't it.
For example, and maybe by the weekend I'll make a more detailed comparison... BNSF's net operating cash more than pay off its interests and its capex and its dividends. APA couldn't do it with theirs.
BNSF borrowed but does it to expand and to buy back their stock. It rarely need to sell its major assets - only does it once in the 12 years to 2009 prior to Buffett's takeover. APA on the other hand does not buy back its stock and borrow just to survive, and almost every year it has to either sell or forced to sell part of its assets.
Its latest purchase of WGP for AUD$5.8B led it to borrowed some $5.2B and raised another $1.8B. Note too its cap raising ended in late January while finalisation was 3rd June... It does that, and here I am guessing, to pay for its cash flow problem.
A good business does not need to raise cash to meet its obligations. Yes it shouldn't have a lazy balance sheet, and yes it should roll over its debt and use other people's money when the return on investment is higher etc. But look at WGP's purchase price and its EBITDA... works out about 7.7% return BEFORE interests and depreciation and taxes. Interests APA managed to bring down to 5.6% in its latest round...
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That 2.1% above costs of borrowing is barely meeting inflation. Add to that depreciation expenses and some tax and that purchase is already under water. Add the loan repayment and it's just taking on a lot of risks for very little if any return
Its recent failed bid to take over Iona... QIC overbid it by some crazy amount right?
Just show APA is desperate to keep buying and growing so it could raise more money. Also show how desperate some of these operators are too.
A business is only good if its operations could fund itself and have some left to pay dividends and some for expansion and organic growth.
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