Two infrastructure stocks with updates that underwhelmed the market today

By Market Index
Thu 20 Oct 22, 3:25pm (AEST)
Chicago Skyway
Source: iStock

Key Points

  • Transurban successfully managed to avoid a second strike by shareholders today
  • Atlas Arteria's US$2bn stake in the Chicago Skyway has created considerable investor uncertainty
  • Both Transurban and Atlas Arteria were trading lower after posting trading updates today

Neither of the two remaining ASX-listed infrastructure stocks could turn a trick today, with toll roads operators Transurban (ASX: TCL) and Atlas Arteria (ASX: ALX) down around -2% in early afternoon after issuing trading updates that clearly disappointed the market.


Let’s start with Transurban with today’s update coinciding with its AGM in Melbourne this morning.

The company reported a jump of around 5% in group traffic compared with the same quarter in 2019.

The biggest rebound in traffic numbers for the three months ending in September were witnessed in Sydney and Brisbane, up 18% and 7.6% respectively.

While Traffic in Melbourne was down around -8% on the same quarter in 2019, traffic in North America came in -4% lower.

Other highlights within today’s update included:

  • Truck traffic numbers, were up 9% over the September quarter compared with the same quarter two years earlier

  • Sydney Airport’s passenger traffic was still 23% lower in September than the same month in 2019

  • Guidance for dividends reaffirmed at 53¢ per share in FY23

Pricing power

During today’s AGM CEO Scott Charlton reminded shareholders that the company is relatively well insulated from inflation due to the ability to pass on costs through higher toll prices.

While 68% of Transurban’s portfolio has revenue embedded CPI escalations, management reminded investors that inflation impacts can be delayed by between three and fifteen months, depending on the asset.

Second strike avoided

In what could be construed as a vote of confidence in the board today, Transurban successfully managed to avoid a second strike on the adoption of its remuneration report.

It’s understood that only 5.4% of shareholders voted against the item by lodged proxy votes.

By comparison, at the 2021 AGM a 25.74% vote against the remuneration report to resulted in a first strike.

What brokers think

Transurban’s share price is down around -10% over 12 months.

Consensus on the stock is Hold.

Based on Morningstar’s value of $13.06 the stock appears to be fairly valued.

Based on the seven brokers that cover Transurban (as reported on by FN Arena) the stock is currently trading with 15.3% upside to the target price of $14.33.

Transurban share price: A 12-month snapshot.

Atlas Arteria

Within a trading update today, rival toll road operator Atlas Arteria revealed that traffic flows fell -2%, while revenue climbed 0.8% in the third quarter as post-pandemic volumes continue to normalise.

Management attributes much of the third quarter result to lower traffic performance at its APRR toll road group in France, which comprises around 91% of the weighted average performance.

Chicago Skyway

Today’s market update follows a barrage of recent criticism over the recent US$2bn stake in the Chicago Skyway.

What clearly irked the market was management’s warning to investors over uncertainty “around the exact age and condition” of parts of the Chicago Skyway.

This only heightened risks that post-completion audits may identify the need for capex expenditure beyond what was budgeted for.

Longstanding opponent of the Chicago Skyway acquisition, IFM, which owns 19% of Atlas expects the deal to “significantly value destructive”.

Highlights within today’s update include:

  • APRR traffic was -2.3% lower for the quarter compared to the third quarter of 2021, which experienced record traffic performance.

  • The ADELAC business, which connects to APRR in south-east France, traffic grew 7.7% and when combined with earlier toll increases resulted in 15% revenue growth for the period.

  • Dulles Greenway (US) saw traffic 1.5% higher than Q3 2021, while toll revenue over the quarter was 6.0% higher.

  • In Germany, the Warnow Tunnel's traffic in Q3 2022 was -8.3% lower, while toll revenue for the quarter was -7.7% lower.

  • No reference was made to Chicago Skyway within today’s update.

What brokers think

Atlas Arteria’s share price is up 8% over 12 months and has been trending higher since 10 October.

Consensus on the stock is Hold.

Based on Morningstar’s value of $6.50 the stock appears to be fairly valued.

Based on the four brokers that cover Atlas (as reported on by FN Arena) the stock is currently trading with 2% upside to the target price of $6.66.

While there are no Buy ratings on Atlas, Credit Suisse recently downgraded the stock to Underperform from Outperform, noting that following the purchase of Chicago Skyway, investors should re-adjust their perception of the overall risk profile.

Target price declines to $6.30. (19/09/22)

Atlas Arteria’s share price over one year.


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