traffic, page-15

Intersuisse update today:

ConnectEast Group CEU Monday, 14 July 2008

Driving along nicely

Recommendation Buy for Yield

Investment Rational
On the 10 July 2008, CEU released its first weeks traffic flow of 275,364.
Although this figure must be taken with “grain of salt” because it included the
“freeway tourists”, it was during school holidays, the freeway remains free and
people have not yet deduced their most effective route.
Nonetheless, it does demonstrate that the freeway is favoured by many
motorists, and an effective route linking the Eastern and South Eastern suburbs
of Melbourne to the Frankston, the Eastern and Monash Freeways.
Community acceptance was one of the key issues surrounding the Lane Cove
and Cross Sydney Tunnels, and we are confident that the East Link Freeway will
not encounter lacklustre usage, mostly because of the time benefit that freeway
provides to motorists.
Price Represents a Yield of 10.7% per unit.
Regardless of the final traffic flow number, ConnectEast will be paying $0.105
per unit for the FY08e and the FY09e, representing a unitholder yield of 10.7%.
• There are no market capitalisation covenants with the debt facility.
• The debt profile is 100% hedged to November 2010 and 80% hedged
until November 2014.
• CEU is well positioned, and has $300m in cash reserves.
Recommendation
ConnectEast intents to continue paying distributions of 10.5 cents per annum to
31 March 2010.
These distributions are underwritten up to 6.5 cents per annum. Thereafter, the
group intents to distribute all available net cash flow after making appropriate
allowances for certain provisions and accruals.
We see CEU at its current prices as an opportunity to invest into completed
infrastructure project, with a reliable earnings stream.
We retain our recommendation of Buy for Yield.