Reporting Season

Atlas Arteria profits soar on traffic rebound ahead of likely IFM takeover

By Market Index
Wed 31 Aug 22, 1:38pm (AEDT)
Multi-lane freeways
Source: Unsplash

Key Points

  • Atlas Arteria posted statutory net profit after tax of $117.1m for the half year up 184% from $41.2m in 2021
  • A record full-year distribution of 40 cents is up 11% on FY21
  • Morgans expects the share price to be volatile while uncertainty over an IFM bid reigns

Atlas Arteria (ASX: ALX), one of few remaining ASX-listed infrastructure plays, was up around 1% heading into lunch after posting statutory net profit after tax, in-line with broker expectations, of $117.1m for the six months ended 30 June 2022, up 184% from $41.2m in 2021.

Underpinning the result was a strong operating environment in France plus the progressive removal of government imposed covid restrictions across all jurisdictions.

Weighted average traffic across all jurisdictions was up 22.7% on the first half of 2021 and just 1.3% below the first half of 2019.

Record dividend

To reflect a sustained recovery in traffic, Atlas declared a record first-half distribution guidance of 20 cents per share (CPS), up from 15.5 cents a year earlier.

The group also expects to pay a second half dividend of 20¢ per share, compared with 20.5¢ a year earlier.

In summary, a record full-year distribution of 40 CPS is up 11% on FY21 and puts Atlas shares on a prospective forward dividend yield of 5%.

Highlights within the FY22 result include:

  • Total toll revenues up 20.5% compared with a year earlier, and up 2.9% compared with the same period in 2019

  • Total traffic on Atlas Arteria’s toll roads in France, the US and Germany up 23% compared with a year earlier but is still down 1.3% on pre-pandemic levels

  • Proportional earnings (EBITDA) were up 21% to $542m, lower than analysts expected

  • Warnow Tunnel, a 2.1-kilometre toll road in Germany, increased traffic by 10.1% vs H1 2021

  • Dulles Greenway Traffic increased by 12.3% vs H1 2021

  • APRR earnings (EBITDA) up 23.0% to EUR1,032m

Outlook

Management also reassured shareholders – as is the case with most infrastructure plays – that they stand to benefit from a high inflationary environment, through better financial performance.

The group expects to raise toll fares on Warnow in line with consumer price indices.

Meantime, the group believes tolls on its most lucrative asset, France’s Autoroutes Paris-Rhin-Rhone (APRR) can increase at 70% of the rate of inflation.

Graeme Bevans CEO also reminded investors that the group is well positioned to support organic and inorganic growth opportunities.

“We will continue to seek opportunities where we can see a clear ability for Atlas Arteria to add value to businesses and deliver appropriate returns for our securityholders.”

IFM Update

The group has not received any proposal from IFM to acquire all of the securities in Atlas.

However, IFM owns around 19% of Atlas through a combination of directly-owned shares and derivatives, which is just below the 20% threshold at which it would be required by takeover rules to launch a formal offer for the whole company.

IFM has previously flagged interest in making a full takeover bid for the company and has already received approval from the Foreign Investment Review Board (FIRB) to potentially buy all of the group.

Meantime, Atlas has confirmed that IFM has asked to nominate a director to the toll road group’s board.'

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Atlas Arteria share price snapshot.

 

What brokers think

Atlas share price is up 17% over one year and staged a meaningful ascent early-June after IFM became a substantial shareholder.

 

Consensus on Atlas is Hold.

 

Based on Morningstar’s fair value of $7.52 the stock appears to be overvalued.

 

Based on the four brokers that cover Atlas (as reported on by FN Arena) the stock is trading with 1.7% upside to the target price of $8.11.

 

Morgans expects the share price to be volatile while uncertainty over an IFM bid remains, the broker retains a Hold rating and target price to $7.69.

 

To incorporate the growth outlook and a potential takeover offer, Morgan Stanley lifts its target price for Atlas Arteria to $8.08 from $6.88.

 

But on valuation, the broker lowers its rating to Equal-weight from Overweight.

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