Spark Infrastructure Group (ASX: SKI)

SKI Details

Distribution guidance reaffirmed: Spark Infrastructure, the specialist infrastructure fund that aims to invest in regulated utility infrastructure in Australia and overseas, had recently released its half yearly results ended 30 June 2017 wherein both net profit after tax (up 2.9% to $48.9 million) and standalone operating cashflows (up 6.2% to $121.9 million) surged at the back of adjusted prior period results. Particularly, prior period results have been adjusted to exclude its infrastructure’s net interest in derivative contracts associated with DUET Group which was disposed of during HY2016. At the back of the result, the Board declared an interim cash distribution of 7.625 cents per share (cps) in line with previous distribution guidance and up 5.2% on 2016. Based on SKI’s ‘World CLASS’ efficiency program, Victoria Power Network’s ongoing efficiency initiatives have been said to deliver a further $27.0 million per annum in savings in 2017.
 

Focus on Efficiency and Growth (Source: Company Reports)
 
Opportunities from new renewable generation in the infrastructure connections,cost management efforts, expected rise in regulated electricity distribution revenues and benefits from Victoria Power Network and Transgrid are expected to drive momentum. Although subject to business conditions, SKI has reaffirmed distribution guidance for 2017 and 2018, of 15.25 cps and 16.0 cps, that represents annual growth of 5.2% and 4.9%, respectively.We give a “Buy” recommendation at the current price of $ 2.58
 

SKI Daily Chart (Source: Thomson Reuters) 

Transurban Group (ASX: TCL)

TCL Details
 
Continued focus on customers: Transurban, which has interest in 15 operating assets across its core markets, has been benefitting from organic growth at the back of traffic growth and toll escalation. Its latest FY17 results entailed a rise in earnings. Particularly, statutory results reflected a toll revenue increase of 11.4% to $2,083 million while profit from ordinary activities after tax surged 850.0% from $22 million to $209 million. Profit from ordinary activities after tax excluding significant items was also up 41.2% to $209 million. There was a 22.3% rise in earnings before depreciation and amortisation, net finance costs, equity accounted investments and income taxes (EBITDA). In proportional results also, toll revenue increased 10.6% to $2,153 million while EBITDA increased by 16.5% to $1,629 million. The group continues its focus on customers and has enhanced digital platforms with the release of CityLink and Transurban Linkt apps (later being a new retail brand in Sydney). The group’s CityLink CAV trials were said to start in August 2017 while new 95 and 495 Express Lanes trials will begin in mid-2018. Lately, Transurban’s financing vehicle, Transurban Finance Company has priced EUR500 million of senior secured 10.5-year notes under its Euro Medium Term Note Programme and settlement of these is expected on 13 September 2017 subject to customary closing conditions. The proceeds are said to be used for development pipeline, debt maturities, and for other corporate purposes.
 
TCL has given its FY18 distribution guidance of 56.0 cps, which is an 8.7% increase on the FY17 distribution. TCL’s existing projects and opportunities in NSW including WestConnex, Beaches Link and Western Harbour Tunnel; construction work on the CityLink Tulla Widening project; on time progress on Brisbane’s Gateway Upgrade North, Logan Enhancement Project and Inner-City Bypass; coupled with drivers such as rise in toll revenues and traffic footprint, are expected to boost performance. The stock has moved up over 10% in last six months (as at September 08, 2017) and signs of boom in infrastructure sector are expected to bring more momentum. We give a “Buy” on the stock at the current price of $ 12.34
 

TCL Daily Chart (Source: Thomson Reuters) 

Sydney Airport Holdings Pty Ltd (ASX: SYD)

SYD Details
 
Reaffirmed five-year CAPEX guidance: Sydney Airport has been banking on its significant investment program to drive customer service and experience improvements. Based on the result for the half year ended 30 June 2017 and recent traffic updates, SYD has also upgraded 2017 distribution guidance to 34.5 cents per stapled security, up 11.3% on the prior corresponding period (pcp). This is however, subject to external shocks to the aviation industry and changes to forecast assumptions. In the first half year, the group’s total revenue was up 7.9% but its car parkingrevenue growth was low owing to modal shift to train, increased ride sharing and limousine services, and lower domestic and Australian international outbound growth. Further, SYD’s operating expenses increased by $11.4 million (9.0%) majorly at the back of higher electricity prices. Group EBITDA of $577.6 million has been up 7.7% on the prior corresponding period (pcp) while net operating receipts have been up 14.8%. On the other hand, the group reaffirmed its five-year CAPEX guidance of $1.3 billion for the 2017-2021 period, with $450 million (including the Ibis airport hotel acquisition) for 2017, which is linked to an agreed 4.3% aeronautical price increase from 1 July 2017. In the month of July, SYD reported for its international traffic growth of 6.7% on the pcp while domestic passengers delivered growth of only 2.0%. In view of the above and the trading scenario wherein SYD is already moving at high levels, we believe that the stock is ‘Overvalued’ at the current price of $ 7.51
 

SYD Daily Chart (Source: Thomson Reuters) 

AusNet Services Ltd (ASX: AST) 

AST Details
 
Rise in total shareholder returns: AusNet stock has risen over 8.7% this year to date, as at September 08, 2017, with sector driven benefits. In a recent update, the Supreme Court of Victoria has formally approved the settlement deed with regards to the Mickleham Road Bushfire Class Action; and under the terms of the settlement, AST will be contributing $5 million to the total amount of about $16 million inclusive of legal costs and interest that is to be paid by the defendants involved in the litigation.AST has also highlighted that greater intervention from policy and lawmakers continues to pose challenges. On the other hand, the group has realised $47 million of efficiency benefits in 2017; and targets to grow the contracted asset base to $1 billion by 2021. 

Contracted Infrastructure Growth (Source: Company Reports)
 
The group had otherwise declared total dividends for the full year of 9.8 cents, up 3.2%, excluding the special dividend. Further, 12-month total shareholder returns to 31 March 2017 have been 21% against 8% in the previous year. There was a 53% decrease in planned outage complaints based on improvement in key customer service measures. However, revenues were impacted by EDPR 2016-20 WACC reset. Given the challenges and limited growth potential, we give an “Expensive” recommendation at the current price of $ 1.73
 

AST Daily Chart (Source: Thomson Reuters) 

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