With regards to the recent 2017-18 budget release, the government announced that it is establishing a 10-year allocation for funding road and rail investments keeping in mind the various transformational projects as planned. Notably, about $75 billion is expected to be delivered in infrastructure funding and financing from 2017-18 to 2026-27. Moreover, the government is eyeing for more innovative financing methods with regards to infrastructure development instead of taking up the traditional way of distributing funds to the states and territories. The government also announced about $472 million in regional investments for local infrastructure projects. This includes an investment of $200 million to support the second round of the building better regions fund. This is aimed at taking control of economic future to some extent. Given this backdrop, many infrastructure stocks are already shining high and are expected to get a boost in the long term. Below is a close look on the key stocks: 
 
Infrastructure commitments from 2017-18 to 2026-27 (Source: Budget documents 2017-18)

Macquarie Atlas Roads Group

MQA Details
Modest growth during Q1FY17:Macquarie Atlas is expected to benefit from future spending on infrastructure projects while the group is already witnessing growth in toll revenue. For Q1FY17, the group reported that toll revenue from Autoroutes Paris-Rhin- Rhone (MQA owns a 20.14% interest in APRR, in France) grew by 2.1% year on year (yoy) to €536.9 million while the revenue from ADELAC (MQA owns a 20.15% interest in ADELAC, in France) increased by 6.0% yoy to €144,289 driven by traffic growth and higher tolls during the quarter. Revenue from Dulles Greenway (MQA owns 100% interest in TRIP II LP Dulles Greenway in Virginia, United States) and Warnowquerung GmbH & Co. KG (MQA owns a 70% interest in, the owner of the concession for the Warnow Tunnel in Rostock, Germany) grew by 7.1% yoy 6.8% yoy to $241,127, and €26,109, respectively. Importantly, in February 2017, MQA announced that it intended to exercise its pre-emptive right to acquire the remaining 50% economic interest in the Dulles Greenway. MQA’s ownership in the Dulles Greenway has been said to increase to 100% following the acquisition. Further, the acquisition is expected to enhance MQA’s ability to optimize Dulles Greenway’s key operating business decisions, capital structure and cash flows over the longer term.
 

Toll revenue and Traffic Update for March Quarter (Source: Company Reports)
 
MQA will also be receiving a final management fee of approximately £2.6m while its nominal interest in the M6 Toll, West Midlands U.K., is now getting transferred to the lender group. For FY16, the group witnessed huge revenue growth led by the reversal of the provision of impairment relating to MQA’s investment in Dulles Greenway, however income from continued operations grew only by 48% yoy to $3.2 million. Net profit after tax grew by 165% yoy to $225 million driven by profits from investments in APRR and sale of Skyway Concession company. The stock has moved up 33.3% over the past six months (as at May 15, 2017) driven by better results during H1FY17, and is expected to get a boost from government’s move. We give a “Hold” recommendation on the stock at the current market price of $ 5.64
 

MQA Daily Chart (Source: Thomson Reuters) 

Boral Limited

BLD Details
Headwaters acquisition to add significant scale to Boral’s USA footprint:Boral Limited has completed the acquisition of Headwaters, a leading building products manufacturer and fly ash marketer in North America, with the closing of the acquisition. 

Acquisition Synergy (Source: Company Reports)
 
During H1FY17, Boral had reported 5% decline in revenue to $2.1 billion while there was a 9% increase in underlying profit after tax before significant items to $149 million. Importantly, robust growth in revenue from Eastern Australia and USA was offset by the impact of equity accounting for US Bricks following the formation of the Meridian Brick joint venture on in November 2016, coupled with the completion of Barangaroo and LNG projects. After significant items, the company has reported a 12% yoy growth in net profit after tax to $153 million. Further, with transition of Australia’s construction activity from resources to multi-residential and infrastructure, company is witnessing benefits from the initial ramp-up of Australia’s multi-year pipeline of major roads and infrastructure work, and is capitalizing on the continued strength of east coast residential markets. The stock has moved up 20.26% year to date. While, there is meaningful budget allocation for home construction, given the increasing residential property rates and leverage in the sector, the stock is already trading at higher levels and needs to be watched out for further upside based on recent developments. We give an “Expensive” recommendation on the stock at the current market price of $ 6.74


BLD Daily Chart (Source: Thomson Reuters)

CIMIC Group Limited

CIM Details
Robust project pipeline to supporting future growth: CIMIC Group recently reported that its CPB contractors have won NZ$82m Baypark to Bayfair upgrade (i.e., second and final phase of NZ transport Agency project), and the design and construct contract is expected to generate revenue to CPB contractors of approximately NZ$82 million. CIM was also lately awarded with three new projects for Main Roads Western Australia following a renegotiation of the Roe 8 contract, and the Western Australian State Government expects the total combined cost of three projects to be ~$276 million. Importantly, the new projects are significant as they will enhance Perth’s road network operations in the northern, eastern and southern suburbs of Perth. CIMIC Group company UGL has been awarded engineering, procurement and construction (EPC) contracts to design and build two new solar farms. The two EPC contracts for the Collinsville Solar Farm in Queensland and the White Rock Solar Farm in New South Wales will generate combined revenue for UGL of $117 million. Moreover, with these contracts, UGL has been awarded a total of nine solar farm projects, making it one of the most awarded contractors for utility-scale solar projects in Australia. CIMIC Group’s mineral processing company, Sedgman, has also been awarded a contract by Heron Resources Limited to deliver the Woodlawn zinc-copper processing facility and associated infrastructure. In addition, Leighton Asia (CIMIC Group company) has been selected by the Government of the Hong Kong Special Administrative Region to construct the East Kowloon Cultural Centre with revenues of $436 million. CIM’s Q1FY17 results entailed 25.6% and 23.0% yoy growth in revenue and net profit. Cash flows from operating activities soared up $339 million yoy to $101 million while the group maintained a strong balance sheet with net cash of $278 million. Notably, projects order book in hand grew by 17.4% yoy to $34.1 billion and a provides sustenance of future growth.  Over the past six months, the stock has moved up by 30.23% (as on 15 May 2017) and currently trading at its 52-week high level, we give an “Expensive” recommendation on the stock at the current market price of $ 40.28
 

CIM Daily Chart (Source: Thomson Reuters) 

Transurban Group 

TCL Details
Good business with extensive project pipeline: During March quarter 2017, Transurban revenue grew by 11.3% yoy to $502 million while the proportional toll revenue increased by 10.2% yoy to $520 million. During the period, company witnessed 5.3% yoy growth in Average Daily Traffic (ADT), driven by growth in the networks of Brisbane and the Greater Washington Area. Further, investment into networks continued to progress well during the quarter, with milestones reached in development projects across all networks. Transurban awards community grants to not-for-profit organizations across Brisbane, Sydney and Melbourne as part of Australian community grants program. These grants support local organizations working in areas including community transport, homelessness, health services, road safety, education and environmental projects. Importantly, Transurban has indicated for opportunities to expand development pipeline while all projects in $9 billion pipeline are amid exclusive negotiations. The stock has risen about 22% in the past six months (as at May 15, 2017) on account of better H1FY17 results and improving operating environment. However, given the sharp run up in the stock seen over the past couple of months and risks from interest rates, we give an “Expensive” recommendation at the current market price of $ 12.08
 

TCL Daily Chart (Source: Thomson Reuters)

Downer EDI Limited

DOW Details
Improved guidance for FY17 with significant contract wins: For H1FY17, Downer revenue grew only by 1.7% yoy to $3.6 billion while there was 8.5% yoy growth in net profit to $78.2 million. Cash flows from operations stood at $78.2 million and represented a cash conversion of 102.6% of EBITDA, while net debt was at $22.2 million. Importantly, work-in-hand increased by 13% to $21.1 billion with major contracts wins in both Australia and New Zealand including high capacity metro trains in Victoria and Sydney and growth trains in New South Wales. Notably, company has increased NAPAT guidance for FY17 to ~$175 million from earlier guidance of $163 million. The group has also been eyeing Spotless for a takeover move. Over the past one year, the stock has moved up 75.74% (as on May 15, 2017), while it slipped a little over the last three months on account of acquisition of Spotless Group news financed by $1.0 billion equity rising. The stock has again got a boost in last five days at the back of the government’s move. Looking at the trading conditions, we give an “Expensive” recommendation on the stock at the current market price of $ 6.48
 

DOW Daily Chart (Source: Thomson Reuters)

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