Atlas Arteria

ALX Details

Traffic and Toll Revenue Performance: Atlas Arteria (ASX: ALX) is engaged in the operation and management of toll road assets. The market capitalisation of the company stood at A$7.03 Bn as on 29^th January 2020. The company recently released its toll revenue and traffic statistics for December 2019 quarter and stated that the weighted average toll revenue witnessed a rise of 6.6% against the previous corresponding period. The weighted average traffic experienced a surge of 6.2% versus pcp. The company added that the rise in weighted toll revenue and average traffic indicates stronger quarterly traffic at APRR, which is relative to the softer conditions in Q4 FY18 that was impacted by the Gilets Jaunes.

However, the weighted average toll revenue and traffic witnessed a rise of 2.6% and 0.7% respectively, for the 12 months ended 31^st December 2019. With respect to Dulles Greenway, traffic observed a decline of 5.1% in the last quarter of FY19 as compared to pcp and a decline of 2.9% for the year. Moreover, toll revenue for Dulles Greenway fell only 0.5% for the 12 months ended 31^st December 2019, even with challenging traffic environment during 2019. Also, the company continued to work towards the completion of several congestion easing projects, which are anticipated to be completed over the upcoming two years.

In another update, the company announced that Yarra Funds Management Limited; Yarra Capital Management Holdings Pty Ltd; Yarra Management Nominees Pty Ltd; AA Australia Finco Pty Ltd; TA SP Australia Topco Pty Ltd; and TA Universal Investment Holdings Ltd, have ceased to be substantial holders in the company on 13^th January 2020. The company also mentioned in a release that APRR has successfully priced €500 million of bonds with respect to its Euro Medium Term Note program. The company added that the bonds possess a term of 3 years and would be maturing on 20^th January 2023. The proceeds would be utilized towards refinancing debt as well as for general corporate purposes.


Traffic & Toll Revenue Details (Source: Company Reports)

What to Expect: The company has provided distribution guidance of 17 cents per share for 2H FY19. It added that the distribution guidance remains subject to asset performance, movements in foreign exchange rates, French tax rate changes as well as future events. 

Valuation Methodology: P/E Multiple Approach

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Gross margin of the company stood at 81.7% in 1H FY19 as compared to the industry median of 72.8%. Current ratio of the company stood at 1.79x in 1H FY19 against the industry median of 1.40x. This reflects that the company is in a decent position to address its short-term obligations as compared to the broader industry. We have valued the stock using P/E based relative valuation approach, for the purpose, we have taken the peer group - Transurban Group (ASX: TCL), CIMIC Group Ltd (ASX: CIM), Reece Ltd (ASX: REH) and Seven Group Holdings Ltd (ASX: SVW). We have arrived at a target price offering a correction of single digit (in percentage terms). As per ASX, the stock of ALX is trading towards its 52-week high of A$8.447. Therefore, we have a watch stance on the stock at the current market price of A$8.150 per share, up by 1.875% on 29^th January 2020, owing to the upcoming full-year 2019 earnings release due on 27^th February 2020. 
 
ALX Daily Price Chart (Source: Thomson Reuters)