Macquarie Infrastructure’s Discount To NAV Set To Disappear

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By Chris Shaw

Despite being one of the more highly recommended stocks in the FN Arena database with seven Buy ratings compared to just two Hold recommendations and one Avoid rating, Macquarie Infrastructure Group (MIG) has recently delivered little in terms of share price performance.

SB Citigroup suggests this could be set to change though, as it sees potential for the share price to move above Net Asset Value (NAV) in coming months if the sale proceeds from the planned divestment of US assets are used to fund a share buyback.

The broker expects as much as $500m to be available for a buyback, which it sees as providing some push for the stock. History supports such a view, as following the $1.4bn in capital returned to shareholders in 2005 following the sale of its interest in Cintra the shares also rallied to trade above NAV.

There is another reason the stock could gain support, the broker suggesting coming months may see investors switch from the property trust sector, where many stocks are trading above NAV, into the infrastructure sector. Value here looks better, the broker noting Macquarie Infrastructure shares are trading about 11% below their NAV of $3.66.

Throw in a more favourable bond market outlook and the potential for further cost reductions in the group’s major assets and the broker sees little reason why the stock won’t strengthen in the medium-term.

Macquarie Infrastructure shares closed yesterday at $3.28.

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