Macquarie says at present stock price no mandate to invest in new projects

Macquarie Infrastructure Group's CEO John Hughes told investors in a  presentation on end-2008 results that their capital position is strong, but that at its present share price it doesn't have a mandate to take on new toll projects. The group downvalued its assets by A$1.72b (US$1.08b @A$=63c) in the second half of 2008 (2008H2) or by about 18% reflecting lowered forecasts for earnings.

It values its total assets at A$7.08b (US$4.46b) now vs A$8.57b (US$5.4b) mid-2008, a writedown of A$1,491m (US$939m) or 17.4%.

Dramatic downward assessments of US, UK TRs

Writedowns in value of the MIG share in various tollroads include:

- M6Toll UK A$2188m to A$1201m, by 45%

- APRR or Eiffaire France A$982m to $A767m, 22% down

- Dulles Greenway A$398m to A$345m, 13% down

- Indiana Toll Road A$344m to A$189m, 45% down

- Chicago Skyway A$236m to A$186m, 21% down

- South Bay Expressway A$133m to A$12m, 91% down (almost wiped out)

Westlink M7 in Sydney has a valuation virtually unchanged at $A805m.

407ETR in Canada is the star performer. It's valuation was increased from A$3.295m to A$3571m, or 8.4% up.

The valuation of the Toronto tollroad alone is now over half of MIG's total holdings, versus 38% in June.

Operating results stable

Traffic on Macquarie TRs fell a weighted average of 2.6% in the second half of 2008 (2008H2) compared to 2008H2. Toll rates were increased somewhat more at 4.2% average across the portfolio of TRs so MIG revenues rose 1.5% 2008H2 vs pcp (previous corresponding period).

Revenues in 2008H2 were running at an annual US$808m (A$642m for H2) with expenses almost stable too at US$230m/yr (A$182m H2) for EBITDA of US$578m/yr (A$459m for H2). That was virtually the same as 2007H2 (up 1.4%).

Buy back of stock

MIG began a buy back of its securities in September based on the low share price. By year's end 89m were bought back, about 3% of those outstanding.

The buyback is continuing and by now 101m are bought back or just over 4%. They were bought back at an average A$2/share.

MIG has said it intends to buy back 10% of its shares by Aug 2009.

Stock price down from A$2.50 to A$1.40

MIG stock has gone from around A$2.50 in Sept 2008 to about A$1.40 now.

The group has sold its interest in toll bridges in Portugal and is planning to sell its share of M7 Westlink in Sydney.

The group has net debt of $7.2b (A$11.4b), a 21% increase on midyear and largely a reflection of the decline of the A$.  Net debt/enterprise value ratio is now 60% vs 51% midyear.

Average debt maturity is 6.4 years with large amounts due in 2013 (on APRR). Interest cost is 6.2% average. Cash balances are $355m (A$564m).

French Eiffaire biggest MIG earner

407ETR is dominant in MIG's balance sheet but that's partly because of the long term of the concession - nearly 90 years more. Dominant in earnings is the MIG share in Eiffaire (consolidation of APRR, AREA). Eiffaire contributed just over half of the toll revenues (A$345m of A$641m) and about half the EBITDA (A$230m of A$459m) and just over half (A$92m of A$170m) in earnings after interest, tax and capex maintenance in 2008H2.

407ETR comes next in earnings, then M6Toll. The US toll properties of MIG did dismally. Dulles Greenway's small net earnings of A$8.5m and the Skyway's tiny A$1.7m were eaten up by losses on the Indiana TR (A$6.1m) and South Bay Expressway A$4.3m)  p27

In discussion of individual tollroads MIG draw attention to 407ETR's decline in earnings in 2008H2 from a "large non-recurring provision for doubtful debts relating to the historic suspension of license plate denial." EBITDA declined 6.2% 2008H2/pcp but without this write-off it would have risen 5%, they say. This relates to the period 2004 and 2005 when 407ETR was in a legal war with the provincial government over its interpretation of its powers under the concession contract. The pike eventually won in the Ontario courts but for part of that time the province's motor registry was not cooperating in collecting video tolls.

The MIG account of 407ETR mentions major upgrades to the camera system - to improve the performance of video tolling.

M6Toll in Birmingham UK has had a dismal traffic trend having been in decline since 2006. Trips are now around 39k/day vs 54k two years ago. MIG attributes recent declines to the weak British economy. Also M6Toll competes directly with tax financed M6, which has had some improvements.

Eiffaire - APRR, AREA

Autoroutes Paris Rhin Rhon (APRR) and Autoroutes Rhon Et Alpes (AREA) in which MIG has a minority share have revenues down 0.9% 2008H2 on 2007H2. But a good reduction in operating expenses allowed a small increase in EBITDA. Truck traffic is weak - off 7% in H2 and in the December quarter being off 10.5%/pcp. Light vehicle traffic is off just 2.5% and 2.6%.

Sydney's M7 Westlink, new in 2006 is continuing ramp up with revenue up and costs down for a good increase in EBITDA  from A$55m to $A66m 2008H2/2007H2.  MIG is selling its half share in M7 to Western Sydney Road Group for A$403m. The sale provides a rate of return to MIG investors of 26%/yr.

Dulles Greenway traffic is down 3.8% from ADT of 54.1k 2007H2 to 52.1k 2008H2. Revenue is down 3.9%. MIG attributes this to the weak US economy and a move to 4 day weeks and 9 day fortnights. They say traffic is also adversely affected by upgrades to competing tax built roads (VA28, VA7). The Greenway continues to operate with a positive cash flow and is well capitalized with $150m in cash reserves.

Indiana Toll Road revenues were up just slightly  - 1.8% going to $82.6m 2008H2 from $81.1m 2007H2. Operations costs were reduced for a second year - 2008H2 were $17.9m vs 2007H2's $20.6m, a decline of 13% - attributed to electronic tolling and reduced toll collector costs.

EBITDA on the ITR has almost doubled since 2005H2 to $64.7m in 2008H2, which was an increase of 7% over $60.6m in 2007H2. 

MIG sees further benefits to customers and shareholders coming from improvements to the toll system as compared to that inherited from Indiana DOT.

The improved profitability came in spite of a major reduction in traffic in the western barrier end from 97.8k/day to 73.9k/day or 24.4% down. Longdistance ticket system traffic was down from 26.7k to 25.9k/day or 3.1%.

They say the closure of I-65 ramps, above average December snow, the weak economy and toll increases have reduced ITR traffic.

Chicago Skyway had a decline in traffic of 7.5% from 51.3k ADT 2007H2 to 47.4k 2008H2, but toll revenue was up 20% because of toll increases from $27.6m 2007H2 to $33.3m 2008H2. Operating costs have been gotten down from $6.2m 2005H2 to $5.5 2007H2 to $5.0m 2008H2, so EBITDA is improving. It rose 28% from $22.1m 2007H2 to $28.3m 2008H2.

Skyway takes ET in-house

The Skyway is transferring back office electronic tolling (ET) from the Illinois Tollway to the Indiana Toll Road with the same ownership, resulting in what MIG says has produced significant cost reductions along with improved service. A "drastic decrease" in violations has been achieved by getting the Chicago police to issue citations rather than sending collection claims.

The lower Skyway traffic is attributed to heavier snow, a weak economy, and the completion of improvements in competing freeways with extra lanes and improved interchanges coming online on portions of the Borman/Kingery/Ford/Ryan expressways.

South Bay Expressway (SBX) in San Diego in 2008H2 only had toll revenue of $10.3m which MIG says was due to lower than forecast traffic and an inability to process violations. It took until October for violations processing to be applied in earnest. Operating expenses of $8.4m almost consumed revenue in 2008H2.

MIG says they are getting on top of trip matching problems and violations processing should enable revenues to be increased. However the design-buld contractor has lodged a number of claims against SBX, and it remains to be seen how these will be resolved.

SBX only opened to traffic Nov 19 2007 and only began tolling Jan 14 2008 so there are no pcp comparables. However MIG says traffic is below expected levels and affected by a weak economy and reduced border crossing trade.

Overall downvaluation

The 17.4% downvaluation of MIG assets reflects generally lower forecast traffic and revenue and in several cases higher discount rates to reflect increased risk.  South Bay Expressway is almost wiped out by MIG's revaluations, being valued now at A$12m (US$8m) now vs A$133m (US$84m) mid-2008.

Discount rates for future revenues have been substantially increased between mid-2008 and end-2008 in some cases - from 10.01% to 12.60% in the case of the ITR and Skyway for example. For 407ETR the discount rate went from 8.02% to 9.50%. The weighted discount rate is now 10.94% vs 9.74% mid-2008.

Downward revisions of traffic forecasts

Traffic forecasts were revised down on Dulles Greenway, M6Toll, APRR and SBX following outisde studies. MIG has adopted lower inflation assumptions.

Asset backing

MIGs net asset backing per share (in a common Australian corporate obfuscation they call them a "stapled security") has declined A$3.84 midyear to A$3.30 now, a 14% drop.

http://www.macquarie.com.au/au/mig/news/attachments/MIG_MIR_final_for_ASX.pdf

http://www.macquarie.com.au/au/mig/news.htm?20090219_0

TOLLROADSnews 2009-02-18 ADDS 2009-02-19 23:00