APA Group has made a proposal for Ausnet Services in cash and shares. Morgan Stanley estimates the company needs $50-100m in operating synergies to maintain free cash flow per share at $0.88 based on the implications of the proposal.
Synergies are assessed to be around 12% of the Ausnet cost base without any head office rationalisation and tax consolidation. The broker considers the proposal consistent with APA Group's strategy.
The Equal-weight rating and $10.11 price target are retained. Industry view is Cautious.
Target price is $10.11.Current Price is $8.46. Difference: $1.65 - (brackets indicate current price is over target). If APA meets the Morgan Stanley target it will return approximately 16% (excluding dividends, fees and charges - negative figures indicate an expected loss).
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