APA - APA Group

Value Collector said:

All they are saying is that over their life as a listed company, their share price and dividend return has been a compounded rate of just under 20%, that's a completely fair thing to say, because its true, obviously if you bought your shares later at a higher or lower price, your return will vary, but either way, APA's performance has been solid for any long term holder do you expect them to do the calculation for each investors personal position.

and yes Berkshire has raised capital, but I can't see how that matters.

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Except its not a Ponzi scheme a Ponzi scheme is "a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors"

that's not what is happening at APA, all returns both Interest to bond holders and distributions to equity holders is being paid for by operating cashflow, rolling maturing bonds into longer dated bonds or borrowing to fund expansion doesn't make a Ponzi scheme,

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I did say it could be, to a very small exception, "technically" right. But the way it's use is misleading. What they are saying is if you put money into APA, over the long term it averages 19.2% a year. That's wrong.

How does the market value APA? Part of their valuation parameters would include the equity contributed right?

How would lenders look into whether or not to lend APA more money? Based in part on its balance sheet - how much equity is in there, how much debt etc.?

That mean the market value of APA is where it is has a lot to thank to the additional equity shareholders put in on top of the initial purchase at IPO.

To take the beginning, then the end, then the years and the dividend only is misleading. They should have also taken in the new equity that was contributed above the dividend reinvestment plan.

So no, don't need to work out for each individual investor, just start each year, say, with the capital that's been retained and contributed - see how it goes at the end of the year; then start the new year with the new position (growth + capital raised from DRP and rights etc.) then see how much gain was made on that new capital at the end.. repeat.

That's how it ought to be done, at least. You can really fine tune it down to the day, or at least monthly or quarterly; or at least each time new capital was injected... but you cannot honestly do it when you take the beginning equity and the end.


If I'm a lawyer, I would be looking into all the performance claims of all the funds. See how they measure performance - and hence take their cut - and maybe start a few class actions. If fund managers based their performance measure on the way IRESS measure their performance, it really bring into question how well they really did and whether the fees they charged were accurate.

E.g. As with my bank account... If I had $100 at the beginning, then during the year I put in another $50. You can't say interest rate on my account is 50%. The way IRESS and hence APA measure their performance. It's very misleading, and since they're being paid or attract investors through it, I'd take a lawyer to see if it's legal.

luutzu said:

I did say it could be, to a very small exception, "technically" right. But the way it's use is misleading. What they are saying is if you put money into APA, over the long term it averages 19.2% a year. That's wrong.

How does the market value APA? Part of their valuation parameters would include the equity contributed right?

How would lenders look into whether or not to lend APA more money? Based in part on its balance sheet - how much equity is in there, how much debt etc.?

That mean the market value of APA is where it is has a lot to thank to the additional equity shareholders put in on top of the initial purchase at IPO.

To take the beginning, then the end, then the years and the dividend only is misleading. They should have also taken in the new equity that was contributed above the dividend reinvestment plan.

So no, don't need to work out for each individual investor, just start each year, say, with the capital that's been retained and contributed - see how it goes at the end of the year; then start the new year with the new position (growth + capital raised from DRP and rights etc.) then see how much gain was made on that new capital at the end.. repeat.

That's how it ought to be done, at least. You can really fine tune it down to the day, or at least monthly or quarterly; or at least each time new capital was injected... but you cannot honestly do it when you take the beginning equity and the end.


If I'm a lawyer, I would be looking into all the performance claims of all the funds. See how they measure performance - and hence take their cut - and maybe start a few class actions. If fund managers based their performance measure on the way IRESS measure their performance, it really bring into question how well they really did and whether the fees they charged were accurate.

E.g. As with my bank account... If I had $100 at the beginning, then during the year I put in another $50. You can't say interest rate on my account is 50%. The way IRESS and hence APA measure their performance. It's very misleading, and since they're being paid or attract investors through it, I'd take a lawyer to see if it's legal.

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The total shareholder return is calculated no different to how any other company does it, your bank account example is bogus, whenever new equity has been injected, new shares have been issued, so it doesn't effect the calculation, and you could have bought in multiple times throughout the last 16years and earned more than 19% compounded.

The total share holder return is a simple calculation to show what your return would have been if you held your shares over a certain time period, companies often include figures showing 1yr 3yr 5yr 10yr etc all in one table.

It's not new equity being injected into existing shares, capital raisings issue new shares.

Value Collector said:

Well you could put in 10% and I could put in 90%, but then your investment would be super, super safe, it would get a AAA rating, and you would only earn 1.5% instead of 5.6%. The more of my collateral there is protecting your position, the less you will earn.

Who is this other guy collecting the 10%? your 70% in this example represents all the bonds.

If we do expand, say we buy the nieighbors house and take on more bonds, it doesn't affect your position, because that new investment will still be 70/30,

Obviously I used $100k as a nice round number, I am not suggesting houses actually sell for $100k.

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Yes I know the $100K is for illustrative purposes. I do have a sense of humour

Serious face now.

So I put in $3 billion, you put in $7Billion to buy a house in Sydney [in twenty years time, haha].

Interest rate we agreed is you get 5.6%, and I get the rest. Yes?

So at end of the year, the house earns 7.7% before tax and depreciation/amtz. So I pay you 5.6% and take the 2.1% that is left. So you get $560M and I get $210M.

Right off the bat, APA doesn't play by that rule. First, it said interests is around $500M to $510M for FY2016. By that 70:30 ratio, if interest is 500M then dividends to APA would have to be $(500/70)*30 = $214M.

But APA estimate its dividend will be "at least" 38cents a share, or $423M (twice the rate they ought be be getting)... and this is before we take away the stay in biz capex (around $70M) and income taxes to the ATO.

But for argument's sake, we assume that this house where I put in 30 n you 70 earn enough to pay your 5.6% cut earn plenty enough to pay your interests.... What about the principle repayment?

You are assuming that APA is like a partnership between lenders and shareholders. Lenders are lenders, they loan the money with interests and demand both be paid back - the principle may be later, but interests are periodic and will make up the delay in principle repayment.

So you are lending me $7B for 5.6% per year. my $10B house can only earn $770M per year, of which I only have $210M after paying you your interests. With that $210, I pay myself $423M in dividends? Say dividend is only $210M... When it's time to also repay your principle, where do I get the money from?

Either sell part of the house; borrow from your cousin; borrow from my parents; or work two jobs right? Not from the income.

Point is, I could roll the debt over and over and meet the requirements... but up to that nth year, I'm still one lender behind my obligations.

Value Collector said:

The total shareholder return is calculated no different to how any other company does it, your bank account example is bogus, whenever new equity has been injected, new shares have been issued, so it doesn't effect the calculation, and you could have bought in multiple times throughout the last 16years and earned more than 19% compounded.

The total share holder return is a simple calculation to show what your return would have been if you held your shares over a certain time period, companies often include figures showing 1yr 3yr 5yr 10yr etc all in one table.

It's not new equity being injected into existing shares, capital raisings issue new shares.

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My example wasn't bogus. How?
I put in $100 a year into an account that pays 10% a year.

Yes I know that that's what shareholder returns are. But it's misleading.

Example. I set up a company that does nothing at all. It makes no money, it spend no money. You the shareholder give me $500M and I just send it off for safe keeping (no charge either way).

Next year you bring in $50M. I send it off again. Then next year you bring in $450M and again I send it off.

But then I tell you... ey VC, you know how all these years I just sit on my behind and did jack all with your $500M? Guess what? The neighbours are now offering to take it off you for $1Billion. That mean I just double your money over two years man. Aren't I cool?

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APA is of course more complicated, but same principle. But its use of total shareholder returns, and you are right that this is the usual practice... well it's misleading and ought to be sued for false advertising.

luutzu said:

APA is of course more complicated, but same principle. But its use of total shareholder returns, and you are right that this is the usual practice... well it's misleading and ought to be sued for false advertising.

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So why single out APA if it's a usual practice that others are also doing?

Smurf1976 said:

So why single out APA if it's a usual practice that others are also doing?

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Because we are discussing APA.

I also recommend that some lawyer ought to take a close look and see if there's a potential class action if fund managers or others whose pay are linked to financial market performance, but whose performance were not measured correctly.

If they measure it in ways IRESS/APA did up there, they're taking credit and money from people through funny maths.


I have no financial interests in APA whatsoever. Maybe even risking making a complete idiot of myself calling it like I have - no one else seem to agree and APA, by its own claims and other believer, return 19.2% to shareholders per year past 15 years.

Only companies whose capital raising are negligible can honestly make such claim using such maths. APA's current market cap is around $9B, around $4.2B real money has been contributed to the business over the years ($3.8B of which were contributed in the past 15 years after the IPO). APA management cannot honestly tell me that those $3.8B play no role at all in the $9B market cap or the performance of the companies.

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When I read 19.2% compounded return, I thought wow... Buffett is the greatest investor and he only managed around 22% p.a. These guys with a few pipelines in little Australia almost match his record. No not really when you look into it.

But if it's just for marketing purposes, then alright... either a dishonest management and board or a very incompetent one who can't measure performance properly. But if pay are linked to it, which I am pretty sure they do... well it's a recipe for disaster.

luutzu said:

My example wasn't bogus. How?
I put in $100 a year into an account that pays 10% a year.

Yes I know that that's what shareholder returns are. But it's misleading.

Example. I set up a company that does nothing at all. It makes no money, it spend no money. You the shareholder give me $500M and I just send it off for safe keeping (no charge either way).

Next year you bring in $50M. I send it off again. Then next year you bring in $450M and again I send it off.

But then I tell you... ey VC, you know how all these years I just sit on my behind and did jack all with your $500M? Guess what? The neighbours are now offering to take it off you for $1Billion. That mean I just double your money over two years man. Aren't I cool?

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APA is of course more complicated, but same principle. But its use of total shareholder returns, and you are right that this is the usual practice... well it's misleading and ought to be sued for false advertising.

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You are acting like the apa share price has been inflated by capital raisings, but do you understand that new shares are issued at capital raisings? The calculation has nothing to do with market cap, it's the performance of individual shares. So the fact that market cap was increased by capital raising means nothing to the calculation.

Also, you find it hard to believe that apa's return is 19% compounded, however back a few posts you admited apa is earning more than 20% return on share holders funds, it seems that fact alone makes it very likely that over time the total shareholder return should follow that.

I am not sure why you think their dividend should be limited to $210M, operating cash flow is over $500M, and if we Want to related that back to the example of our house investment overation, apa equity holders have their own funds earning a bit over 8% plus they are taking the return in excess of the bond holders interest rate, so their return will be a lot higher than the 8%.

But anyway, there is to many flaws in your logic on this one, and I am a bit over it, so I will leave it to you.

luutzu said:

Because we are discussing APA.

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You are saying that APA is doing something that isn't good but that this is a "usual" practice that many others are also doing.

I'm just not seeing the logic in targeting APA specifically if the issue relates to Australian companies in general and is widespread as has been suggested.

I see it as more of an "Australian companies are doing this" rather than an "APA is doing this (implying that it's unique to the company)" issue if it is indeed a "usual" practice.

Smurf1976 said:

You are saying that APA is doing something that isn't good but that this is a "usual" practice that many others are also doing.

I'm just not seeing the logic in targeting APA specifically if the issue relates to Australian companies in general and is widespread as has been suggested.

I see it as more of an "Australian companies are doing this" rather than an "APA is doing this (implying that it's unique to the company)" issue if it is indeed a "usual" practice.

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Usual in that I've seen many companies use it. MorningStar on Commsec have this Total Shraeholder Return for all companies. So in that sense it is common practice.

That does not mean it is all wrong or all misleading; does not make it right or an accurate reflection of the company's performance and management ability either.

Whether this measure's use is fair and honest or not depends on what has been done with the business, what has been put into the business, whether the market is valuing it fairly or "accurately" or overpricing the stock etc. etc.

I just scan through APA's 2008 and 2009 AR... no such total return measure were used to show how the company was doing. Why not report it then, why report it now? Promotional material or wanting to inform shareholders and potential investors?

If they really believe such total return measure reflect the company's (and hence their pay and bonuses), then use it consistently - that would be the honest thing to do. But in all honesty, who in their right mind use the market's judgment as a true reflection of the company's value. But if you use it, useit consistently, not when it make you look good only.


Look at Berkshire... that is an example of honest management reporting. The guy show one measure of his, and the company's, performance year in year out. He even tell us using BookValue as he report it may not reflect accurately the value of the busineses BRK owns... but you do not want management who move goal posts.


Why am I picking this out on APA? Besides we're discussing APA and I haven't looked at many where this stands out as outrageous lies.

First, we all want honest management who don't BS and promote themselves and their performance dishonestly.

Second, APA's management's honesty, more than most, are critical to determining the company's financial position and its ability to meet obligations and continue operating.

For instance, the depreciation and amortization charges APA send to the ATO are much higher than what they tell the shareholders - for 2015 they report some $208M dep/amtz expense to reduce profit and hence tax payable; then in a presentation or hidden in some note say it really only costs us $50M, not $208M, to fix and keep the pipes and systems going so all is good and only the taxpayers lose out.

$50M over $8.4B in property, plant and equipment is 6% costs to maintain about half of Australia's pipelines and a few power stations and a wind farm or two, all over Australia?

It costs me, if I take it to a proper mechanic, around $500 to change oil and coolant fluid and a checkup on my $10K Suzuki Swift. APA is telling us that it costs the equivalent of my Swift's annual oil change and checkup to keep their PPE in business?

But we ought to take their best judgment on it right? Because if we don't and we do what the ATO does and believe that on average its assets will need what is reported to fix, APA is making massive losses.


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Anyway, as I said above, only companies that has not significantly raise additional capital over the initial amount should be using this total shareholder return measure to promote their performance. To use it when $4.2B of the $4.4B in the company's equity are contributed by the shareholders is just misleading.

It is almost as bad as VC giving me $2B over two years then I told him I just doubled his initial $500M in two years.

Value Collector said:

You are acting like the apa share price has been inflated by capital raisings, but do you understand that new shares are issued at capital raisings? The calculation has nothing to do with market cap, it's the performance of individual shares. So the fact that market cap was increased by capital raising means nothing to the calculation.

Also, you find it hard to believe that apa's return is 19% compounded, however back a few posts you admited apa is earning more than 20% return on share holders funds, it seems that fact alone makes it very likely that over time the total shareholder return should follow that.

I am not sure why you think their dividend should be limited to $210M, operating cash flow is over $500M, and if we Want to related that back to the example of our house investment overation, apa equity holders have their own funds earning a bit over 8% plus they are taking the return in excess of the bond holders interest rate, so their return will be a lot higher than the 8%.

But anyway, there is to many flaws in your logic on this one, and I am a bit over it, so I will leave it to you.

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My logic is never flawed. I'm very good at Critical Thinking because I've done the course twice at uni

Better word would be "supported". APA's share price was supported by its equity raising. It simply could not borrow as it does, could not expand and "grow" as it has, and its share price would not be where it is, without raising the additional $3.8B in equity since the IPO of $0.5B.



Operating Return on avg cap employed last two years (2013-2014) was 10.5 and 8%.

Excluding significant items, net finance costs increased by $25.5 million, or 8.5%, to $325.1 million (2013: $299.6 million).The average interest rate (including credit margins) applying to drawn debt was 7.12 % for the financial year (2013: 7.35%). - 2014AR, p.6

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BUT, let say you and I like APA and we thought that instead of spending $10B on one house in Sydney we could do better buying APA and so take it over for $10B and assumes all its debt and assets etc.

Because the bankers do not like you so won't be lending anymore, I don't like debt so won't be borrowing. What's going to happen to our APA? Either going into administration or we better cough up more dough to repay principles, or cut dividends to zero and maybe only add one coat of paint instead of two to any pipes that have to go in.

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But since APA can always kick that principle repayment down the road with more new debt... and since we like that kind of business model, it is logical to then only get into it after it almost collapse and raised new capital or sold lots of assets to bring that balance sheet down... that way this legalised ponzi scheme can start afresh with us at the top instead of the bottom of the pyramid

Woah. Is this another example of the market hitting the tops or just the beginning of getting to the tippy top?

$11 cash offer a share. With some 1.18B shares outstanding, that's about $12.98B.

With some $9.7B in total debt, offer put enterprise value at close to $23B?

Earnings last year was $236m.... let say averages $300M over next few years

That's 300/23000 = 1.3% yield?

From memory, APA's average cost of its $9.5B debt was 5%+....

It's a big purchase for a tax writeoff.

Well, good thing I don't short stocks. Phew.

CK Asset Holdings - Hong Kong.
https://en.wikipedia.org/wiki/CK_Asset_Holdings

Power Assets Holdings - Hong Kong Electric company.
https://en.wikipedia.org/wiki/Power_Assets_Holdings

No way would the FIRB let this go through..

TO being knocked back in a preliminary assessment by the Treasurer.

Unless the board of APA come to see his honorable MP to let the deal through as some idiot is actually willing to pay $20B+ for a company that's barely earning $500M on liabilities of some $900M with some $9B in debt in a rising interest rate environment... with size and scope large enough it'd be testing the ACCC on those monopoly games each time it fake a "growth and expansion" move to raise more equity and borrow more dole.

$5 says it's going to go under in 12 months.

Ho hum ....

she loves me ... she loves me not.
Interesting times.
At Christmas no friends and under $9-. Not a bad company with a great track record and a bright future.
My view is that eventually dividend goes to 60 cents so at $9 - a steal.
Obviously if someone was willing to pay $11- to take the whole company over, even more a steal at sub $9 as the market spat its dummy.

Still possible someone eventually bites the bullet and takes them over. Not holding my breath for that mind you.

Pre election even and banks being smashed to yields of 7% with full franking credits verses others with less merit, NOT APA ... but a whole bunch of ho hum companies being bid up whilst others shredded. APA if now back in favor and for me its getting into reduce territory here at $10.45 and above. Of course will hold some, since they were gifted to me by the idiotic visits to even below $8.50 as the market had a tantrum late 2018, and even I was checking if I missed the end of the world .... which did not occur ...

Up here .... 20% plus higher ... whilst I like the company ... like it a lot longer term ... reducing a bit into this with still a decent core holding.

If you will excuse the pun, surely their must be another offer in the pipeline for this. There is no reason for it to be at an all time high of $10.80 at this time of the year. Looks set to go over $11 next week which is higher than the previous offer price. One of the best companies of the last 20 years.

Clansman said:

If you will excuse the pun, surely their must be another offer in the pipeline for this. There is no reason for it to be at an all time high of $10.80 at this time of the year. Looks set to go over $11 next week which is higher than the previous offer price. One of the best companies of the last 20 years.

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Lots of puns, but not that much punter interest, apparently!
What I really like about APA is that they have been making big investments, and that pipeline has not wholly matured. So great potential for strong ongoing dividends.

kahuna1 said:

...gifted to me by the idiotic visits to even below $8.50...

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I was not so lucky and had to pay $4.60 for my first tranche.

All good with this one as per usual, situation normal = everything is awesome.
Looks set to strike through $11 again on a down day.
Now we just wait for Iuutzu to turn up and tell us that The Reject Shop have a better business model

luutzu said:

Serious face now.

So I put in $3 billion, you put in $7Billion to buy a house in Sydney [in twenty years time, haha].

Interest rate we agreed is you get 5.6%, and I get the rest. Yes?

So at end of the year, the house earns 7.7% before tax and depreciation/amtz. So I pay you 5.6% and take the 2.1% that is left. So you get $560M and I get $210M.

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No, you calculated that wrong.

If The "House" earned 7.7% on it's total value of $10 Billion, it is going to generate $770 Million of earnings that will distributed to between bond holders and share holders.

Me the the Bond holder will earn 5.6% on my $7 Billion I contributed, which is $392 Million (not $560 Million you stated)

The remainder of the $770 Million, which is $378 Million goes to you as the share holder.

Because you earned $378 Million on your investment if only $3 Billion your rate of return is 12.6% vs my return of 5.6%.

So yes in this situation the share holder earns an additional 7%, but that return is due to the higher risk they take of being wiped out or having income cut etc etc.

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This is basic investment theory 101.

luutzu said:

$5 says it's going to go under in 12 months.

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Well, its a few years on now and APA are still going strong, I just bought more.

I kinda wish you were still around because there is multiple bets you owe me for now hahaha.

APA in talks to acquire Bass link, if this deal goes through it should be a nice addition to their portfolio of assets.