Abertis says potential rate of return on Penn Pike concession 11 or 12 percent

An Abertis presentation to investors says the estimated shareholder return (IRR, Internal Rate of Return) on the Pennsylvania Turnpike concession is in "the low double digits." 11 or 12 percent? They say the concession "meets the company's stringent investment criteria."

An official told us the company and its partners had gone "right to the edge" in their best and final offer. They were very keen to be selected.

They thought the Pennsylvania Turnpike would be a "perfect fit" in giving them a balanced portfolio of tollroads on different continents. And theyw ere keen to gain major presence in North America that they have so far lacked.

The concession would, they say, not change Abertis dividend.

Under "key financials" Abertis projects revenues in 2009 at $780m vs $608m in 2007. Earnings before interest, taxes, depreciation and amortization (EBITDA, a common rough measure of profit) are due to grow from $365m to $570m, a 56% increase (the Abertis presentation has a typo there: 28%). EBITDA margin rises to 73% from 60%.


To launch the concession Abertis would put up $3.0b, Abertis' co-investor Criteria $0.5b, and Citi $2.5b, for a total equity of $6b. Banks would lend $8.5b for total capital of $14.5b.

$12.8b of that would be disbursed to pay the state the upfront concession fee and $1.7b retained as reserve funds or working capital.

Capital spending over the life of the concession is put at $11.33b in 2008 prices.

Toll rates will be adjusted steadily approximately in line with inflation, the presentation notes as compared with "erratic increases" under the Turnpike Commission.

The presentation shows Pennsylvania Turnpike toll rates as presently lower than the average for other tollroads. Average tolls in Euros are E0.043/km in the Turnpike vs E0.063/km average in Europe. They are also lower than the US average, it says. After the 25% increase planned for 2009 they will not be far below.

Traffic intensity by the European measure is put at an average 35k ADT similar to Acesa in Spain (39k) but above Sanef in France (24k). There is a wide diversity of users with little seasonal variation, they say.

Toll revenues are derived almost equally from trucking (48%) and light vehicles (52%).

Light vehicles predominate in the Philadelphia area of the Turnpike but in the more rural stretches heavy trucks are 30% to 40% of traffic vs 22% overall. Truck journeys average 100km (60 miles) and light vehicle trips 50km (30 miles).

A map shows the competitive I-90 and I-80 routes east coast to Chicago, but the text calls I-80 "the only competitor for long-haul journeys by heavy vehicles."

The presentation to investors says that the Pennsylvania Turnpike concession would "transform us into a clear global leader in the management of tollroads." And it would diversify the group's assets and extend the average life of the company's concessions.

Abertis "industrial expertise" would allow operating improvements and improved revenues, the presentation says.

Citi hasn't produced any comparable presentation for investors so far as we can discover.

The Abertis presentation is now posted to the Abertis website here:

http://www.abertis.com/dyndata/pennsylvaniaturnpike_en.pdf

TOLLROADSnews 2008-05-21