Atlas Arteria: Traffic rebounds while awaiting the takeover bid
About the author:
- Author name:
- By Nathan Lead
- Job title:
- Senior Analyst
- Date posted:
- 20 July 2022, 2:30 PM
- Sectors Covered:
- Infrastructure, Utilities
- The strong rebound in APRR traffic continues in line with our expectations, supporting an outlook for attractive distributions from ALX (if it remains listed).
- Short-term share price performance will be influenced by what seems to be imminent takeover activity. Hold retained, with an increased share target price (login to view).
- ALX released its Q2 traffic and toll revenue data, which is the key earnings risk leading into its 1H22 result (due 31 August). Traffic and revenue is recovering broadly in line with our expectations on both key roads (APRR, Dulles Greenway).
- APRR (c.85% of our ALX equity valuation): 1H22 traffic (+23% on pcp) and toll revenue (+20% on pcp) was effectively in line with our forecast, albeit mix was more skewed to light vehicles than assumed. APRR traffic was above pre-COVID levels by c.2%. ALX cited the APRR’s resilience to higher fuel prices and supportive domestic tourism.
- Dulles Greenway: Traffic (+12% on pcp) and toll revenue (+20%) was marginally ahead of our forecast, but traffic is still >30% below pre-COVID. Movement in average toll suggests there was a greater proportion of peak period traffic than normal, which we assume will normalise as traffic recovers.
Forecast and valuation update
- With traffic and revenue broadly as expected, we leave asset level earnings forecasts effectively unchanged. DPS forecast reduces by c.1%. With the stock facing takeover activity, we acknowledge these forecasts are somewhat irrelevant.
- ALX stand-alone valuation lifts 4 cps to $6.53/share, due mostly to update to spot FX. This is indicative of the potential downside if IFM does not carry through with a takeover bid.
- 12-month target price lifts (login to view). This is our guestimate of the price IFM may ultimately need to pay to succeed in its takeover, similar to what happened with the takeovers of infrastructure stocks SYD, SKI, and AST whereby the initial bid price was nudged up to see the deal receive support.
- Hold. IFM is a well-known Australian infrastructure manager (one of the protagonists in the SYD takeover) so unlikely to commit to the on-market purchase of 15% of ALX and indicate a potential takeover without intending to follow through with a formal takeover bid.
- A higher bid price than the $8.10/share that IFM paid for its initial 15% interest in ALX.
- A takeover bid not proceeding or extended delays in the deal’s completion.
- Traffic growth and toll escalation.
- Capital investment activity.
- Unexpected change in inflation and interest rates.
- Accounting adjustments affecting distributions from APRR
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