Investing in Infrastructure Stocks: APA, IFN & BKW

Investing in Infrastructure Stocks
Infrastructure Stocks

Infrastructure development is said to be a major contributor in the economic development of any nation, and multiplier impacts of infrastructure development allows to foster economic growth, including integration, poverty alleviation and employment.

Infrastructure includes energy, logistics transportation, ports, airports, and telecommunications. A shortfall in infrastructure capabilities is usually not fulfilled by acquiring goods from overseas or imports and is fulfilled by expanding capabilities & promoting development. A classic example can be roads that cannot be imported.

The infrastructure companies or infrastructure stocks, in this context, have to play an important role in infrastructure development. Infrastructure stocks provide necessary capabilities to achieve desired goals in the development of infrastructure, including maintenance of infrastructure, productivity enhancement, new technologies, employment, and ultimately economic development.

Interestingly, the infrastructure needs are growing, and it would continue to grow as the world becomes more sophisticated. Put another way, infrastructure needs are not as similar as they were, a century ago.

21st century started when capital markets were going through a recovery phase, which was brought by the technology burst, and till date technology continues to play an important role in our life. Technology infrastructure is developing rapidly, and it would continue to develop, as we become more sophisticated and needful.

Investment managers in the country have a range of products that allow investors to grow capital through investing in infrastructure-based specialist products. Some specialist infrastructure products include RARE Infrastructure Value Fund, Maple-Brown Abbott Global Listed Infrastructure fund, and Lazard Global Listed Infrastructure Fund.

Some of the best infrastructure stocks for 2019 could be named as Sydney Airport (ASX: SYD), Atlas Arteria (ASX: ALX), Transurban Group (ASX: TCL), Adelaide Brighton Limited (ASX: ABC), Boral Limited (ASX: BLD), CSR Limited (ASX: CSR), Downer EDI Limited (ASX: DOW), CIMIC Group Limited (ASX: CIM), Fletcher Building Limited (ASX: FBU) etc.

Three Australian infrastructure stocks under discussion are as follows:

APA Group (ASX: APA)

APA Group operates energy infrastructure in Australia. Its gas transmission pipelines are present in each state & territory on mainland Australia, transporting approximately half of the nation’s gas usage.

Recently, the group has entered into a non-binding Memorandum of Understanding (MOU) with Emperor Energy Limited (ASX: EMP) to agree on the scope and commercial framework for the provision of midstream infrastructure & services related to gas that would be produced from the gas field owned by Emperor Energy. In addition, the group is convening its Annual General Meeting on 24 October 2019 in Sydney, Australia.

In September, the group released its Annual Report for the period ended 30 June 2019. In its Chairman’s Report – Mr Michael Fraser highlighted the achievements of the group for the period.

In FY 2019, the group continued to pursue its largest-ever organic growth program that has seen over $1.4 billion in energy infrastructure delivery in the past three years. The group had $21 billion of assets owned or operated, leveraging those assets to deliver over $1 billion in operating cash flow annually.

He said that the company’s former CEO & MD – Mr Mick McCormack, was instrumental in making the group a leading business for fourteen years. Mr McCormack retired in July, and the group announced Mr Rob Wheals as CEO and Managing Director.

In FY 2019, the total revenue (excluding pass-through) was $2,031 million, up by 4.6% over the previous period. EBITDA increased by 3.6% to $1,573.8 million for the period over the previous year. Besides, net profit after tax increased by 8.8% to $288.0 million.

On 17 October 2019, APA last traded at $11.39, down by 0.26% relative to the last close. In the past three-month, APA has delivered a return of +5.55%. On a YTD basis, the return of APA is +33.88% and +16.65% return over the past one year. Besides, the market capitalisation of the group was ~$13.74 billion, with ~1.18 billion shares outstanding.

Infigen Energy (ASX: IFN)

Renewable energy player, Infigen Energy generates & sources renewable energy to provide customers with clean, reliable and competitively priced energy solutions.

Recently, the company released unaudited production for September 2019. Accordingly, the energy sale from the Smithfield OCGT was 5GWh. Smithfield OCGT is a gas peaking facility, and it is expected that annual capacity utilisation to be in the range of 2-8%, with significant variation in output anticipated from month to month.

Further, the company sold total renewable energy generation of 160 GWh in September 2019, up by 14% over the previous corresponding period (pcp). For FY 20 period, in YTD term, renewable energy generation sales reached 539 Gwh compared to 478 Gwh in pcp, up by 13% over pcp.

In early October 2019, the company’s 25MW/52MWh battery at Lake Bonney in South Australia achieved energisation and full AEMO registration, and the battery is expected to be fully-commissioned in H1 FY20.

Infigen EnergyMonthly Renewable Energy Generation (Source: Company’s Announcement)

In September 2019, the company notified that 2019 Annual General Meeting had been scheduled to be held on 21 November 2019 in Sydney.

On 17 October 2019, IFN last traded at $0.68, down by 1.45% relative to the last close. In the past three-month, the stock has delivered a return of +48.39%. On the YTD basis, the return of the stock is +56.82% and +28.97% return over the past one year. Besides, the market capitalisation of the company was ~$663.88 million, with ~962.15 million shares outstanding.

Brickworks Limited (ASX: BKW)

Brickworks is a testament of the Australian heritage with a history dating back to the Great Depression of the 1930s. Presently, it is one of  the leading building material manufacturers, helping Australians to build their infrastructure.

In September 2019, the company has reported that the approval was secured to develop Industrial Land at Kemps Creek, Sydney. Accordingly, the company’s Joint Venture Property Trust – 50:50 with Goodman Group (ASX: GMG) received the necessary approval from NSW Department of Planning, Industry and Environment.

The approval is related to the development of Oakdale West Industrial Estate in Kemps Creek, Sydney. The project includes Precinct 1 building works, Stage 1 infrastructure works, and lead-in services.

Brickworks Limited

Asset Growth (Source: BKW’s Analyst Presentation FY July 2019)

In addition, the company secured necessary permits for the Western North-South Link Road that would provide connectivity through to Lenore drive, and the M7 & M4 motorways. It was also said that the JV has grown to become a property trust with assets over $1.7 billion over the past ten years.

The approval also includes the Western North-South Link Road that would provide swift access from Estate to Lenore Drive, and the M7 & M4 motorways. The JV has demonstrated significant growth over the past 10 years, and it has asset worth- over $1.7 billion across western Sydney & Brisbane.

On 17 October 2019, BKW last traded at $18.61, down by 0.95% relative to the last close. In the past three-month, the stock has delivered a return of +12.25%. On the YTD basis, the return of the stock is +13.53% and +12.11% return over the past one year. Besides, the market capitalisation of the company was ~$2.82 billion, with ~149.9 million shares outstanding.


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