Atlas Arteria: Showing leverage to recovering traffic

About the author:

Nathan Lead
Author name:
By Nathan Lead
Job title:
Senior Analyst
Date posted:
25 February 2022, 9:00 AM
Sectors Covered:
Infrastructure, Utilities

  • The FY21 result showed the expected leverage to recovering traffic volumes.
  • We retain an ADD, given recent share price decline has lifted potential returns.
  • 12 month target price (login to view). Forecast DPS paid over FY22 of 43.5cps.


The FY21 rebound growth from key asset earnings was as expected, noting toll revenue had been pre-released. There was less cash at the corporate level at year-end (A$133m) than we’d targeted, mainly due to cash reserved by MAF before paying distributions to ALX.

The guidance for the 1H22 distribution payment (+58% on pcp to 20.5 cps) is ALX’s largest yet, albeit slightly lower than we’d forecast.

FY21 key asset results

APRR (ALX 31%, c.85% of equity valuation) generated +22% EBITDA increase on pcp, driven by 18% revenue growth and 220 bps margin expansion. The +28% increase in 2H21 NPAT supports strong ALX DPS growth in 1H22. While EBITDA is still below pre-COVID, NPAT is above pre-COVID due to lower tax rates.

EBITDA of the Dulles Greenway (ALX c.100% economic interest) grew +21% on pcp. Revenue growth was +16% and EBITDA margin expanded 330 bps. While the DG had US$79m of trapped distributable cash at FYE-21, US$17.6m was used in February to ensure debt service was met.

We don’t think the DG will pass its lenders’ distribution lock-up tests until CY26 for first cash distribution in FY27.

Other points of interest

FY21 ALX corporate costs paid ($31m) were less than we had targeted, albeit ALX’s guidance is that these costs will lift to $34-36m in FY22.

APRR capex guidance (real Dec-2021) is €650-700m for 2022-23 and an average €200-250m/yr post 2023. This is higher than previously factored into our modelling.

Capex on the RCEA project is currently being funded by Eiffage. APRR will pay all historic and future construction costs when its ownership is transferred to APRR (expected Q2FY22), which it has debt capacity to fund. We have not yet factored this project into our modelling, with starting tolls still under discussion.

Forecast and valuation update

Forecast changes are relatively minor. We expect ALX’s DPS to grow rapidly as APRR traffic rebounds to trend and France company tax rates are reduced as legislated; our forecasts target paid DPS lifting from 28.5cps in FY21 to 43.5 cps in FY22F and 48.5 cps in FY23F. This implies 6.8% cash yield at current prices.

Our valuation of ALX has decreased (login to view), as a result of forecast changes and updates to AUDEUR and AUDUSD. This implies c.4% upside.

While ALX’s DPS may rapidly increase over coming years, we estimate that its NPV will decline as the APRR’s concession expiry draws closer. At this stage, we think ALX’s equity valuation may have peaked and will decay over coming years.

Investment view

ADD retained, given 12 month potential return of 11% and 5 yr forward investment IRR of c.7% pa at current prices.

Price catalysts

APRR is negotiating a c.€400m package of works with the French state that it is hopeful for an outcome on during 2022. Discussion around further works beyond this, particularly requiring a concession extension, are not expected to progress until following the French federal elections.

Dulles Greenway regulatory change (pushed out to 2023).

Q1 traffic and toll revenue release on 20 April.


Traffic growth and toll escalation.

Capital investment activity, including M&A and capital/debt restructuring of the Dulles Greenway.

Movement in government bond yields / risk-free rates.

Accounting adjustments between APRR statutory profit and distributable profit.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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