On May, 17, 2013, China State Grid Corp, the Middle Kingdom’s largest power distributor, agreed to pay Singapore Power Ltd AUD824 million, or AUD1.23 per share, for 19.9 percent of Australia-based SP AusNet (ASX: SPN, OTC: SAUNF).

The Chinese state-owned entity also bought 60 percent of Singapore Power’s Australian energy and infrastructure assets, and these deals follow the November 2012 purchase of a 41.1 percent stake in ElectraNet, which operates the main electricity transmission network in the state of South Australia.

SP AusNet owns and operates electricity transmission and electricity and gas distribution assets Down Under. The move by State Grid is a firm indication that its USD50 billion global acquisition plan will likely include more energy infrastructure assets as well as an expression of confidence in a country with a resilient economy, a transparent regulatory framework and a stable legal system. 

State Grid will more than likely make more investments in Australia. That’s not to say that its targets will include AE Portfolio Conservative Holding APA Group (ASX: APA, OTC: APAJF), the country’s largest owner/operator of natural gas infrastructure, with more than AUD12 billion of assets, including 14,000 kilometers of pipelines and storage facilities.

But you can run with the big-money boys by owning a piece of a long-term invest-to-grow story. And APA has come well back from an all-time closing high of AUD6.95 on the Australian Securities Exchange (ASX) on May 20, its share price declining by 10.8 percent to AUD6.20 as of the close of trading on June 12.

But since our initial recommendation in the Sept. 26, 2011, debut issue of Australian Edge APA has generated a total return–capital gain plus dividends paid–in US dollar terms of 69.1 percent. Over the past year the total return is 22.7 percent. Year to date in 2013, it’s 2.9 percent.

That puts it below our recently raised buy-under target of USD6.50, and it translates to a yield of 5.7 percent for a company that’s never cut its dividend and has a solid track record of increasing its payout.

APA earns a perfect “6” under the AE Safety Rating System. Another mark of its high quality: The stock will join the S&P/ASX 50 Index and the S&P/ASX All Australian 50 Index after the close trade on June 21, 2013, as a result of the quarterly rebalancing process.

The latter is basically a distinction based on APA carrying one of the 50 largest market capitalizations among stocks listed on the ASX. But it also means large-cap, blue-chip focused index funds will have to adjust portfolios (read: buy APA stock) to reflect their benchmarks.

A payout ratio well within reason given the cash flow it generates from its fee-based services, a more-than-manageable debt burden, a lack of exposure to commodity-price swings, a solid and growing dividend and its inclusion among the biggest of Australia’s publicly traded companies all suggest a stable business worthy of investors of all risk tolerances.

As an invest-to-grow story, APA’s long-term fortunes are tied to its ability to maintain assets and also add pieces to its portfolio. The recent acquisition of Hastings Diversified Utilities Fund (HDF) has already contributed to operating cash flow, and the complementary infrastructure the deal brought to APA’s table looks likely to boost the bottom line as Australia’s gas renaissance matures.

And APA recently completed the sale of the Moomba-Adelaide Pipeline System (MAPS) to QIC Global Infrastructure (QIC) for AUD400.5 million, which funds will be applied to repay current debt and provide further support for the company’s growth CAPEX program.

The latter may include the pipeline connected to the Australia Pacific LNG project in Queensland, which is nearing 60 percent completion. Its owners, AE Portfolio Aggressive Holding Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY) and ConocoPhillips (NYSE: COP), have indicated a sale is likely once the project is complete.

APA Managing Director Mick McCormack has expressed interest in this asset and others tied to LNG projects under construction in Queensland. The pipeline attached to AP LNG may fetch as much as AUD3 billion; economics will depend on the tariff the eventual buyer will be able to collect.

What’s certain is that APA has the liquidity to participate in the bidding on it and other similar assets–and to continue to grow cash flow and to support and grow its dividend.

Management has also applied to the Australian Competition Tribunal (ACT) for a “merits review” of the Australian Energy Regulator’s (AER) final decision in relation to the access arrangement on APA’s Victorian Transmission System (VTS) for the 2013-to-2017 period.

The review is focused on a number of areas detailed in APA’s response to the AER’s final decision, including the cost of equity included in the derivation of the weighted average cost of capital and the use of indexation in the determination of regulatory depreciation. Management expects a decision from the ACT by the end of calendar 2013.

The AER’s final decision on Victorian gas network tariffs included a rate of return allowance of 7.03 percent to 7.39 percent, significantly below the proposed weighted average cost of capital of approximately 8 percent. The total revenue allowance came in 13 percent lower than company proposals.

The depressed state of the yield curve and improved credit margins likely contributed to the WACC allowance. The AER set aside arguments for a higher market-risk premium and retained its 6 percent assumption from the draft decision and adopted current market rates for the risk-free rate and debt-risk parameters.

The final decision represents a 22 percent gap compared to the revenue request included in APA November 2012 proposal. It relates to an AUD80 million cut in the AER’s depreciation allowance, essentially the return of capital component.

A favorable outcome for APA would result in an earnings uplift of approximately 1 percent.

As for recent financial and operating results, APA reported a 28.5 percent increase in net profit after tax (NPAT) before significant items of AUD98.3 million for the first half of fiscal 2013. Statutory NPAT was up 221 percent to AUD211.76 million, which includes a number of significant items with a net positive impact of AUD113.7 million.

Revenue for the period grew by 17.8 percent to AUD624.69 million.

Normalized earnings before interest, taxation, depreciation and amortization (EBITDA) increased by 20.2 percent to AUD324 million. Normalized EBITDA includes a AUD31.6 million contribution from HDF’s Epic Energy pipeline assets for the period from Oct. 9, 2012.

EBITDA of APA’s historic continuing business–excluding the Allgas business divested in December 2011 and the Epic Energy assets–increased by 8.5 percent to AUD292.9 million.

Management reported solid growth across all business segments and cited earnings from the Roma Brisbane Pipeline expansion and increased investment performance, particularly from fellow Conservative Holding Envestra Ltd (ASX: ENV, OTC: EVSRF), in which APA owns a 30 percent stake, as additional factors driving EBITDA growth.

Energy Infrastructure, which includes APA’s gas transmission assets and the Emu Downs wind farm, contributed 85 percent of normalized EBITDA. Segment EBITDA increased by 18.6 percent to AUD276.5 million, with growth supported by the three months’ contribution from the increased Roma Brisbane capacity and bolstered by Epic Energy.

The latter accounted for half of the increase. Management also noted volume and tariff increases for the majority of its pipelines.

APA continued the expansion and further development of its energy infrastructure portfolio across Australia. The expansion of the Roma-to-Brisbane pipeline was commissioned in September 2012, increasing capacity by approximately 10 percent.

The additional capacity has been substantially contracted under long-term transportation agreements with an energy retailer and a major gas user.

Work continued on the expansion of the Mondarra Gas Storage Facility and Goldfields Gas Pipeline in Western Australia. Major construction work on Mondarra’s surface facilities was completed in February 2013, and pre-commissioning work has commenced, with completion of the expanded facility scheduled for operation in mid-2013.

The additional capacity on the Goldfields Gas Pipeline is expected to be available in 2014.

The Epic Energy assets added via the HDF acquisition will support the long-term growth of APA infrastructure segment. Epic’s assets include the South West Queensland Pipeline, a 937-kilometer pipeline connecting Wallumbilla in Queensland with Moomba in South Australia.

The pipeline has long-term gas transportation agreements for both western-haul and eastern-haul services. Plans are also underway to develop expanded compression and associated services at Wallumbilla.

All capital expenditures for these expansions are supported by long-term contracts with high-credit counterparties or relevant approvals under regulatory arrangements, consistent with APA’s long-term strategy.

APA also provides asset-management and operation services under long-term contracts with the majority of its energy investments as well as to a number of third parties. EBITDA in this segment increased by 22.4 percent to AUD17.2 million, mainly due to increased payment for services provided to Envestra, the addition of services to GDI (EII) Ltd and for third-party work across most states.

APA holds equity interests in a number of energy investments across Australia and a non-equity investment in the Ethane Pipeline Income Fund. EBITDA for this segment increased by 34.8 percent to AUD30.7 million, mainly due to an increase in Envestra’s profitability as well as increases across all APA’s investments.

The latter was offset by the reduced distributions received from HDF. HDF distributions contributed to Energy Investments until Oct. 9, 2012, when APA’s interest exceeded 50 percent. Since that time the Epic Energy assets from HDF have formed part of APA’s Energy Infrastructure segment.

Normalized operating cash flow was up by 35.3 percent to AUD212.5 million, while operating cash flow per share was up by 20.9 percent to AUD0.298. APA’s board of directors had previously declared an interim distribution of AUD0.17 per share, in line with the prior corresponding period. It will be paid March 13, 2013, to shareholders of record as of Dec. 31, 2012.

The distribution payout ratio for the current period, based on operating cash flow, was 66.2 percent, down from 69.2 percent for the first half of fiscal 2012.

Based on its results for the six months ended Dec. 31, 2012, management expects EBITDA for the full year to June 30, 2013, of AUD755 million to AUD770 million. This range includes the significant items reported for the half year. Management maintained distribution guidance for the full year of “at least” AUD0.35 per share.

APA will report results for fiscal 2013 on Aug. 21, 2013. But management will declare the company’s final dividend on or about June 19, 2013, two months ahead of the full-year earnings announcement.

Since fiscal 2009 APA has raised its distribution by an average of 4.4 percent per year, though the pace of increase slowed from 5.1 percent at the beginning of this period to 1.7 percent for fiscal 2012, with a high of 5.6 percent for fiscal 2010.

Management’s circumspect approach to fiscal 2013 capital management reflects its desire to preserve as much cash as possible so it can continue to invest in expansion and further development of its existing energy infrastructure portfolio around Australia.

Including Epic projects already underway, APA expects fiscal 2013 full-year growth CAPEX to be around AUD400 million. The Roma-to-Brisbane and Goldfields pipeline projects and Mondarra gas storage project accounted for most of the first-half expenditure; those efforts will generate new revenue in fiscal 2014.

APA is now continuing with approximately AUD300 million of projects in and around the Epic pipelines.

Even after these investments as well as the AUD2.8 billion acquisition of HDF APA’s balance sheet remains strong. APA repaid all of HDF’s outstanding liabilities upon completion of the merger on Dec. 24, 2012, and now has just AUD113 million of debt due within the next 12 months.

APA has more than AUD700 million of cash and committed undrawn facilities with which to meet short-term debt obligations and to fund CAPEX going forward.

Following the HDF acquisition APA’s gearing ratio–or debt-to-capitalization–was 64.2 percent, well within the company’s long-term target range of 65 percent to 68 percent and sufficient to provide APA headroom to fund projected growth over the next 18 months to two years from internally generated and currently available resources. APA’s access to funding markets at competitive pricing levels is also well-proven.

The company paid AUD0.344 per share for fiscal 2011, including an interim dividend of AUD0.165 and a final dividend of AUD0.179. Management boosted the fiscal 2012 interim dividend to AUD0.17 and the final to AUD0.18, for a total distribution of AUD0.35 last year.

Since its June 2000 initial public offering on the Australian Securities Exchange APA has never cut its payout. It remains a reliable invest-to-grow story.

APA Group is a buy under USD6.50 on the ASX using the symbol APA and on the US over-the-counter (OTC) market using the symbol APAJF.

APA’s fiscal year runs from Jul. 1 to Jun. 30. The company reports full financial and operating results twice a year; it typically posts first-half results during the third week of February, with full fiscal year numbers out in late August.

Interim dividends are usually declared in mid-December and confirmed with first-half results. Final dividends are usually declared during the third week of June, ahead of reporting of full fiscal year results.

The most recent interim dividend of AUD0.17 per share was declared Dec. 12, 2012; it was paid Mar. 13, 2013, to shareholders of record as of Dec. 31, 2012. Shares traded “ex-dividend” on this declaration as of Dec. 21, 2012.

The final dividend of AUD0.18 in respect of fiscal 2012 second-half results was declared Jun. 19, 2012. It was paid Sept. 14, 2012, to shareholders of record on Jun. 29, 2012. It traded “ex-dividend” as of Jun. 25, 2012.

Dividends paid by APA are “qualified” for US tax purposes. Based on the “fiscal cliff” compromise reached in Washington, DC, in early January dividends will be taxed at Bush-era rates of 5 percent to 15 percent for investors’ first USD450,000 a year of income for couples and USD400,000 for single filers. Above that the maximum tax rate is 20 percent.

The Australian government withholds 5 percent to 15 percent, based on the US-Australia tax treaty on double taxation. The two countries have not taken the step of eliminating withholding from dividends paid in respect of shares held in a US IRA, as have the US and Canada.

Among the analysts who cover the stock six rate it a “buy” according to Bloomberg’s standardization of brokerage house recommendation terminology, while seven rate the stock a “hold” and one says “sell.” The average target price is AUD6.17, with a high of AUD7 and a low of AUD5.10.