Ann: Toll Revenue and Traffic Statistics - 4th Quarter 2017, page-7

Good question.

Out of the three, MQA is currently the one with the highest expected IRR, from an equity holder’s perspective and according to my modelling. When I say “from an equity holder’s perspective” I mean “not as a Free Cash Flow Yield on Enterprise Value”.

If I calculate the IRR over the life of the asset portfolio as a FCF Yield on EV (i.e. on an unlevered basis), I presently see something around 7.70% per annum for MQA (inclusive of forecast Capex for the APRR out to 2035).

But, because the cost of debt is very low (between 2.50% and 3.00% depending on the assumptions, as a portfolio weighted average), when you recalculate the IRR for the equity in isolation the result is actually a lot higher, in the neighbourhood of 15.00% pa according to my estimate. This compares with 11.25% ca for TCL and 9.75% ca for SYD [*].

Therefore, at its current price, MQA does offer a meaningful yield premium vis-à-vis its comparables. That premium, though, is partially justified by:

1) The currency risk, as the portfolio PV is basically 75% EUR and 25% USD.
2) The fact that the main asset APRR is a mature infrastructure asset with limited growth options and a shorter life span than TCL or SYD.
3) The rather complex capital structure and the uncertainty over the planned internalisation of management (exit from the fund management arrangements with the Macquarie Group).

So, overall, while it does look very attractive to me at its current level (and I have been buying some more today), it also comes with additional risks when compared with assets such as SYD or TCL.

[*]: These are only back-of-the-envelope estimates that involve long-term assumptions on traffic growth; therefore, it is imperative that they be taken with a pinch of salt.

All IMHO only and please DYOR.

Cheers