Morningstar | Atlas Arteria Has an Excellent Distribution Outlook but Short Life Reduces Attractiveness. See Updated Analyst Note from 20 Dec 2018
We published a special report on Atlas Arteria on Dec. 21, 2018, titled "Reinitiating Coverage of Atlas Arteria: Excellent Distribution Outlook but Short Life Reduces Attractiveness" that can be found on our website. Atlas Arteria’s stock price has been a tremendous performer, having risen more than 700% since being spun out of Macquarie Infrastructure Group and listing on the Australian Securities Exchange in 2010. But we doubt the dream run will continue. While the stock will boast an attractive distribution yield within a few years, we consider it overvalued because of the relatively short concession life of the key underlying asset--Autoroutes Paris-Rhin-Rhone. Nonetheless, APRR is good quality, being the dominant motorway network in Eastern France, justifying a narrow economic moat rating for Atlas Arteria. Other assets have excessive financial leverage, but we see value in Dulles Greenway.Atlas Arteria is trading at a 17% premium to our AUD 5.30 per security fair value estimate. The 2019 distribution yield is 4.7% unfranked, with distributions growing at high teen rates to 2022 on our numbers. But the longer-term distribution outlook is not as attractive because toll road investments have finite lives. Key asset APRR will be given back to the government in 17 years for no consideration, after repaying all debt. This will have a major negative impact on distributions over the longer term.
The 25% stake in APRR makes up around 80% of our valuation. APRR is performing well as traffic volumes and consumer price index-linked toll increases recover in tandem with France's economy. However, the main drivers of strong earnings and distribution growth in coming years are lower interest and tax rates, which we believe will both head higher over the longer term.
Wholly-owned Dulles Greenway will probably remain in distribution lock-up for a few more years. But performance will improve, and it should add materially to distributions over the longer term.
Atlas Arteria is a global infrastructure developer and operator. As of Dec 31 2015, Co.'s investments consisted of 20.14% interest in Autoroutes Paris-Rhin-Rhone, a 2,323 km motorway network located in the east of France; 50% interest in Dulles Greenway, a 22 km toll road in Loudoun County, northern Virginia, U.S.; 70% interest in Warnow Tunnel, a two km toll road and tunnel under the Warnow River in the northern German city of Rostock, Germany; and 100% interest in M6 Toll, a 43 km motorway that bypasses Birmingham and connects to the existing M6 at both ends in West Midlands, U.K.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.