Australia | Jun 25 2013
– AUD down 10% against USD and EUR
– Fall boosts MQA valuation and dividends
– Other catalysts add to value support
By Greg Peel
Recently UBS posted a report reiterating the analysts’ Buy rating on locally-listed infrastructure fund Macquarie Atlas Roads ((MQA)). The report was prompted by the sudden fall in the Aussie dollar.
Two major assets dominate MQA’s balance sheet, being the Eiffarie/APPR and Dulles Greenway toll roads in France and the US respectively. One hundred percent of the fund’s sales are sourced in euro, and its valuation is spread between euro and US dollars. In recent weeks the Australian dollar has devalued by around 10% to both currencies.
Looking at it another way, MQA’s share price has underperformed by 10% on a constant currency basis. As an investment company lacking clarity in the timing of asset sales and the crystallisation of profits, MQA has always traded with a discount, but brokers now see that discount as offering attractive value. The shares have been trading at 15-20% below net asset value for some time, with the market looking unlikely to close the gap until catalysts emerged to provide some interest.
The Aussie fall is one such catalyst, but JP Morgan yesterday suggested that should the State of Virginia decide to acquire MQA’s stake in the Dulles Greenway, this would be another positive catalyst. The State has requested an independent report to determine whether the purchase should move to stage 2, which is due in the second half of this year.
UBS also noted two developments on the ever-changing French tax front which are relevant to the APPR. A tax on trucks using non-toll roads is due to commence in October, and while the effect is difficult to quantify the tax should encourage trucks to use the APPR. The land tax level has been lifted, but the effect of this will be neutral, UBS, notes, given it can be recovered through motorway concessions.
UBS lifted its target price to $2.15 from $2.05 when it posted its recent report. JP Morgan has lifted its target to $2.18 from $1.83 and upgraded to Overweight. Last week Macquarie upgraded to Outperform, lifting its target to $2.40 from $2.16.
Macquarie has revised its currency forecasts resulting in a lift to FY14 and FY15 dividend expectations of 13% and 17%. If the MQA share price rises, the manager receives a greater fee, but even taking this into account the dividends will lift by double-digit percentages. The reduced currency forecast adds 17% to Macquarie’s 2013 valuation and 12% to 2014. The analysts’ FY13 dividend forecast rises to 4.9c, up 0.1c, FY14 rises to 9.4c, up 0.9c, and FY15 rises to 15c. The APPR refinancing, which the broker anticipates in 2014, also offers potential for dividend upside.
UBS, Macquarie and JP Morgan are the only three of the six brokers in the FNArena database covering MQA to update their views based on the sharp fall in the Aussie. BA-Merrill Lynch (Underperform) was recently concerned about the potential over-estimation of traffic stats on these still-developing roads, but conceded dividend upside potential. Deutsche Bank (Sell) and CIMB (Neutral) have not updated their views since the February profit report.
The FNArena database thus shows three Buy, one Hold and two Sell or equivalent ratings on a consensus target price of $1.94. Averaging only the targets of the three brokers recently upgrading their forecasts provides $2.24.
Brokers have recently been rushing to reassess their stock valuations based on assumptions of a lower for longer Aussie. Much unloved Macquarie Atlas is among the greatest beneficiaries.
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