Ann: Trading Halt, page-9

Having read through today's Investor Presentation, it would appear that the purpose of the capital raise is to finance the acquisition of the remaining 34.62% interest in the M5 West concession.

At a purchase price of 468mA$, and factoring in a) 47mA$ in transaction costs, and b) incremental proportional debt of 200mA$ for the asset (see slide 57), the M5 West is being valued at 715mA$/34.62% = 2,065mA$ (on a 100% basis).

As shown on slide 46, FY19 underlying EBITDA for the M5 West was 164mA$ for a 65.38% share, i.e. 251mA$ on a 100% basis.

Also, as mentioned on slide 17, the M5 West concession expires on 10 December 2026; after that, the asset will be handed over to the Westconnex (where TCL have already paid for their 25.5% interest).

Therefore, TCL are effectively acquiring the minority interests in the M5 West at an EV/EBITDA of 2065mA$/251mA$ = 8.2x, for an underlying concession that has a residual life of only 7.5 years.

At the current traffic growth rate of +2.4% pa, and CPI growth rate of +1.6% pa, that gives me an IRR (on EV) of just 2.2% pa.

So, while there may well be “operational synergies to be realised” as well as some possible tax savings (as stated on slide 17), at a first glance this looks to me like a very high price to pay for this acquisition, and not accretive at all in terms of asset IRR vis-a-vis Group IRR.

The optical “accretion” (as claimed by Management) by 3c/share in FY20 FCF is merely due to the short life of the underlying concession, but that will be offset by a dilution in FCF/share from 2027 onwards.

Overall, this is yet another acquisition by TCL (after the A25 and the Westconnex) whose economics I find underwhelming, as well as poorly justified to the investor community.

IMHO & DYOR