Someone asked the other day why I prefer CEU over TCL and for that matter RCY.
Issues facing TCL IMHO are:
1. TCL exposure to the USA. Specifically-
Earnings in US dollars. Continued appreciation of the AUD to affect earnings. FOREX hedges in place with TCL but the concern would be that if the AUD remains high for sometime then hedging costs would increase, lower profits.
CEU - 100% of earnings are in AUD RCY - 100% of earnings are in AUD
The price paid for US toll roads by TCL now might be above what they can be sold for. This is an argument for most US assets right now which in the case of TCL might/might not be fair but none the less a drag on the SP.
CEU - no US assets RCY - no US assets
2. Diversification versus specialization. This argument essentially goes like this: when you buy into RCY or CEU you know exactly what you are buying - a toll road in a specific location ie. specialization. When you buy into TCL you are buying into diversification with assets in Sydney, Melbourne and the USA. ie with TCL you buy into the good assets along with the bad (or lower profitable assets).
On top of this, TCL does not own many of its assets outright, but usually owns controlling stakes and in the case of the M7 owns a minority stake. In any event, not having 100% ownership can make things more difficult for TCL in the management of its toll roads.
CEU - 100% stake in its toll road. RCY - 100% stake in its toll road.
And why IMHO CEU is a better buy than RCY is:
1. RCY shareprice at a significant discount to its IPO. A main concern is that the traffic projections of the RCY prospectus assume very aggressive traffic targets.
CEU traffic targets are considered less aggressive by the market.
2. RCY is not set to open until 2010 ie. sometime before any incomes are seen.
CEU will be opening in a few months with revenue streams about to come online.
3. The Sydney Harbour Tunnel has NOT been the supposed traffic cash cow it was said to be. This has therefore weighed on RCY which is considered to be a similar project.
CEU is located in Melbourne where the only other toll road, CityLink, has been the jewel in the crown for TCL.
Anyway, just some of the reasons above why IMHO CEU represents a better buy than TCL or RCY.
RCY Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
