Toronto 407ETR traffic holds in Sept quarter 2008 vs 2007Q3, revenue up 5.5%

The big tollroad in Toronto, 407ETR, reports traffic pretty much flat in the September quarter versus a year ago - average weekday traffic of 391.6k trips 2008Q3 vs 392.4k 2007Q3. That 0.2% decline is offset by a small increase in weekend traffic for total trips in the quarter of 29.79m up 0.7%.

But trip lengths are down overall, from 20.97km (13mi) to 20.59km (12.8mi). Vehicle-kilometers traveled on which revenue is based are down by 1.1% in total. In addition transponder use appears to continue strong growth with 904.5k in use now compared to 838k the same time last year - an increase of nearly 8%. Given that the 407 charges an enormous $2.80 (C$3.50) premium for video tolling the increased transponder use probably reduces the operator's toll revenue somewhat.

407  International the holding company reports the Toronto tollroad's Sept Quarter tolls of $122m (C$152.9m @C$=80c) vs $116m 2007Q3 - a rise of 5.5% quarter over quarter. First nine months of the year are up 7.8% over 9 months a year ago.  The company about 50% owned by Cintra, 30% by Macquarie has operating expenses of $22m/quarter (C$27m) and charges $14m (C$18m) depeciation and amortization and has interest charges of $38m (C$47m) so declares a profit of $48m (C$60m) for the quarter.

(Actually they use the term namby pamby term 'net income.' That's wrong with a 'profit'?)

Toronto has strengths, especially immigration

With a high dependence on the US auto and appliance industries the Toronto area would be expected to face a serious downturn in business. However the area has major economic strengths.

Canada encourages large volume immigration of skilled workers and refugees where the US restricts them tightly. This gives high tech industry a major advantage over the US and also ensures strong demand for new housing and associated appliances and furnishings.

No race guilt mortgage policies

Canada also lacks the unsound race-guilt and welfare-oriented home mortgage policies of the US so there is no comparable subprime mortgage bubble. Despite a popular reputation for progressivism the Toronto area is less "planned" by bureuarats and special interests than almost any north American city except Houston and very developer-friendly. That makes the economy of the Toronto area rather strong.

European analysts say tollroads strong in recession

A European analyst, Steven Fernandez of finance house Exane BNP Paribus who follows 407ETR because it is the largest toll operation of Cintra writes that the facility is likely to weather the coming world economic downtown better than many tollroads and better than most businesses.  Still he foresees smaller toll increases being implemented - about 3% a year vs 8% this year - to prevent traffic being eroded.

He also thinks the downturn will offer the opportunity to refinance the pike's longterm debt on more favorable terms.

Robert Crimes of Credit Suisse also writes that 407 is "resilient". He notes that toll road companies generally have outperformed the rest of business by a striking margin in the last three months. The return of oil prices to more normal levels is another strong positive for road companies.

TOLLROADSnews 2008-10-25