Atlas Arteria (ALX) This morning, the Transurban of Eastern France, Atlas Arteria, released their 2024 results. Similar to Transurban, given the regular traffic and revenue updates, there were few surprises, and the result showed the resilience of ALX’s business. The HNW Portfolio holds a 3% weight to ALX.

Key Points:

  • Profits Up: Profits up +7% to $275M, with a new tax on French toll road assets and farmers strike in the first half offset by CPI-linked toll increases and solid traffic. Assets in France, the USA and Germany all saw higher traffic. Atlas was surprised to see interest costs fall over the year and interest income increase from higher cash deposits.
  • New French Taxes: This has weighed on ALX’s share price, but the company seems to be navigating this well, with higher taxes offset by large increases in inflation-linked earnings. Similar to Transurban, ALX has benefited from a regulatory assumption that interest costs for a utility automatically increase in line with inflation, similar to a floating rate mortgage . ALX took advantage of very low rates in 2019-22 to lock in low-rate long-term debt, which saw earnings accelerate with higher inflation in 2023-24.
  • Dividends: Dividend 40 cents per share as expected, but according to this result, some were expecting ALX to guide lower dividends in the future in light of French taxes. We were very pleased to see ALX’s guide to maintaining 40c in the coming years despite higher taxes supported by higher free cash flows.
  • Guidance: Management did not provide any concrete guidance but did guide the full-year 2025 distribution of at least $0.40.

Portfolio Strategy: ALX exposes the Portfolio to desirable monopoly assets and enjoys mandated price increases that protect our dividends against the ravages of inflation.  While CV19 hit mobility and toll road revenue, traffic and revenue have rebounded far more quickly than the market expected. ALX is an under-researched stock that offers an attractive valuation, trading on a 7.7% dividend yield. We remain surprised that IFM has not launched a bid for ALX to buy another 3% in November. IFM currently owns 30% and can creep another to buy another 3% by May 2025.

ALX finished up +3% to $5.21