bell potter analysis

Here is an extract of their analysis - rather positive. They value the stock at $1.33, lower than several months ago but I find that they tend to follow the market ... rather than pre-empt it ...

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Traffic looks promising but still early days

􀂄 First week of free traffic data released
AADT of 275k vs PDS (2008) of 258k (7% below) and UBS (2008) of 236k (15% below). Typically ~30% of traffic drops off when tolling kicks in, but Melbourne is a more sophisticated toll road market, the first week coincided with school holidays (which typically results in weakness) and the comparison also ignores ramp-up. CEU has also provided a detailed breakdown of traffic by section (which
we were not expecting) highlighting confidence in the results and supporting operational capability.

􀂄 Tunnel performance will be the key driver to meeting traffic forecasts. By our calculation, the tunnel accounts for ~31% of total revenue. AADT for the tunnel was ~118k during the first week (PDS forecasts ~118k and UBS forecasts
~97k), which is encouraging and bodes well for ramped up (steady-state) traffic. Average toll during the first week was $2.61 vs PDS of $3.10 (19% above) and UBS $2.29 (14% below).

􀂄 Operational performance will not be clear for some time
EastLink is an inherently complex multi-sectional toll road, with significant toll variability (from $0.26 to $2.22 per section). It will take longer to gain confidence
in underlying performance and achieve a mature steady state (potentially up to 18-24 months).

􀂄 Valuation: $1.33 (Spot DCF) / PT: $1.32 (12 month DCF less 5% discount). We rate CEU a Buy, however acknowledge it is a higher risk exposure (at least in the short-term). Tolled traffic and average trip length/revenue remain as the key risks (now that construction and operational risk have been mitigated) but in our view CEU remains a quality asset, with longer term optionality.