Atlas Arteria (ALX) This morning, the Transurban of Eastern France, Atlas Arteria, released their 1H 2025 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 Portfolios have a 3% weight to ALX.

Key Points:

  1. Profits Up: Profits up +8% to $275M, with a new “temporary” tax on French toll road assets 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 decline over the year and interest income increase due to higher cash deposits.
  2. 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, much like a floating-rate mortgage. However, 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.
  3. Dividends: We were very pleased to see ALX’s guide to maintaining “at least” 40c in the coming years despite higher taxes supported by higher free cash flows.
  4.  Why is the stock off?:  On the results call, management discussed that they were looking at acquisitions. ALX is a company that does not have a license to pursue acquisitions after the 2022 acquisition of the Chicago Skyway, a move designed to fend off a takeover by IFM, which at the time had just bought 15% of ALX. Unlike in 2022, IFM now have a 30% representation on the ALX board, which will make it hard to make a major acquisition.

Portfolio Strategy: ALX exposes the Portfolio to desirable monopoly assets and enjoys mandated price increases that protect our dividends against the ravages of inflation.  We remain surprised that IFM has not launched a bid for ALX. IFM currently owns 33% and can buy another 3% shortly.

In the meantime, ALX is an under-researched stock that offers an attractive valuation, trading on a 7.4% dividend yield.

ALX finished down 2% to $5.26