Atlas Arteria

ALX Details

Quarterly Update (For the Period Ended 30 September 2020): Atlas Arteria (ASX: ALX) is an operator and manager of a portfolio of toll road assets. As on 27 October 2020, the market capitalisation of the company stood at ~$5.96 billion. The company has recently released its statistics for the third quarter ended 30 September 2020, wherein it reported recovery of revenue and traffic in France and Germany where traffic exceeded the levels achieved in the summer holiday months of July and August 2019. However, the toll revenue for Q3 2020 fell by 4.0% and weighted average traffic fell by 4.7% as compared to the quarter ended September 2019. This was mainly due to the onset of the second wave of COVID-19.

Quarterly Traffic and Revenue Statistics (Source: Company Reports)

Hearing Examiner’s Report on Dulles Greenway SCC Rate Case: The company notes the release of the report by the Hearing Examiner regarding the Dulles Greenway SCC Rate Case which recommends no increases to peak tolls, but supports off-peak toll increases for the next three years.

Successful Completion of Security Sale Facility: The company has announced the successful completion of its 214,191-security sale facility at a 15% premium over the average sale price per share of $6.52. The company has also successfully priced €500 million of bonds which have a term of 8.3 years under its Euro Medium Term Note Programme. The proceeds from the issuance will be used to refinance debt and for general corporate purposes.

Growth Outlook: ALX seems well positioned to support growth opportunities as Governments look to stimulate economies post COVID-19. It retains a healthy balance sheet with no corporate debt and a highly capable and engaged workforce. The company has a long-term focus on the creation of sustainable cash flows and lengthening average concession term. It is aiming higher shareholder value and distribution growth.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company retains decent liquidity and improved flexibility to pursue growth opportunities. It retains strong road operations and maintenance experience. As per ASX, the stock of ALX is trading slightly above the average 52-weeks’ levels but retains decent potential for further growth. The stock of ALX gave a return of 5.172% in the past six months but a negative return of 1.134% in last one month. On a technical front, the stock of ALX has a support level of ~$5.868 and an immediate resistance level of ~$6.576. We have valued the stock using the price to cash flow multiple based illustrative relative valuation method and arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered Transurban Group (ASX: TCL), Qube Holdings Ltd (ASX: QUB), Auckland International Airport Ltd (ASX: AIA), etc. as peers. Considering the valuation, modest long-term outlook, and recovery in traffic and revenue, we recommend a ‘Buy’ rating on the stock at the current market price of $6.10, down by 1.930% on 27 October 2020.

ALX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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