Morningstar | Atlas' Soft 2H Traffic is Broadly in Line with Expectations
Narrow-moat Atlas Arteria’s traffic and revenue growth remain soft midway through 2019, tracking broadly in line with our full-year expectations. However, earnings and distributions should continue growing strongly on lower interest expense and tax. We make no changes to our earnings forecasts or AUD 6 per share fair value estimate and consider the stock materially overvalued. While the medium-term outlook for distributions is excellent, there are longer-term risks from potential changes to tax rates and interest rates. Additionally, core asset APRR in France has a short concession life of 16 years, after which it will be handed back to government debt-free and for no consideration.In the first half, APRR toll revenue rose 1.3% to EUR 1.22 billion as higher tolls and modest growth in the number of trips by high toll-paying trucks offset lower car traffic volumes. Car traffic growth of negative 1.4% was hurt by comparison with a strong prior period, which benefited from increased car trips because of rail and, to a lesser extent, pilot strikes. Additionally, yellow vest protests hurt traffic earlier this year. We expect a return to modest growth, forecasting overall traffic volumes grow 1.5% per year in the medium term. ADELAC, Atlas Arteria’s smaller motorway network in the French alpine region, reported toll revenue down 0.2% to EUR 28 million in the first half.
The Dulles Greenway in the U.S. continues to underperform, with toll revenue down 0.4% in the first half to USD 44.2 million. Traffic volumes fell 2.3% on impacts from the government shutdown and snowstorms earlier in the year, as well as large toll increases on feeder motorway Dulles Toll Road. Management estimates DTR toll increases reduced traffic on Greenway by 5%. Greenway has underperformed in recent years following upgrades to non-tolled competing routes and remains in dividend lock-up because of too high financial leverage.
We forecast traffic volumes and earnings improve from 2020, allowing Dulles Greenway to start paying dividends to Atlas in 2021.
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.
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