@ChristopherC Yes, the traffic results (and forward guidance)...

@ChristopherC

Yes, the traffic results (and forward guidance) relative to the Dulles Greenway are disappointing, but the rest of the portfolio (and in particular the main asset APRR) is doing pretty well.

Excluding the DG, the current rates of traffic growth and toll escalation relative to the European assets can support an organic distribution growth of around 10% pa.

Plus, there is a 3.2bn EUR interest rate swap (where Eiffarie receives Euribor and pays fixed 4.60% pa) maturing in June 2018; this hedge is costing MQA security holders approximately 60m A$ pa on a proportional basis.

Net of tax, the rolling off of this swap should enable MQA to increase their distribution by approximately 7c/security from FY2019; therefore, net of organic growth and interest cost relief, MQA should be able to distribute around 33.5c/security in FY2019.

At today’s closing price, that corresponds to a one-year-forward dividend yield of 5.78%, increasing organically at a rate of roughly 7.50% pa thereafter, everything else being the same. And this is all before factoring in any distributions from the DG.

Modelling the whole MQA portfolio (including the DG) from a Discounted Cash Flow perspective (with some conservative traffic growth and toll escalation assumptions), I see an overall IRR of about 7.00% pa on an Enterprise Value basis, at today’s SP. This is inclusive of the management fees paid to the Macquarie Group (assuming that any exit payment made as a consequence of the internalisation of management will be done in a non-dilutive way).

But, because the cost of servicing the EUR debt is going to fall steeply from FY2019 onwards (with the Eiffarie swap rolling off), the corresponding IRR from the perspective of a pure equity holder is actually a lot higher, in the low double digits by my estimates. Not bad for this type of business, on a risk-adjusted basis.

Which is why I have started building a position in MQA over the past few days, both to take advantage of the recent spike in long-term bond yields and to diversify my own infrastructure portfolio (TCL and AIA are my largest equity holdings at present) with a new inflation-protected yield proposition.

IMHO & DYOR