Macquarie Atlas Roads Group MQA
February 03, 2010 - 7:21pm EST by
2010 2011
Price: 0.80 EPS NA NA
Shares Out. (in M): 452 P/E NA NA
Market Cap (in $M): 361 P/FCF NA NA
Net Debt (in $M): -228 EBIT 0 0

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All numbers are in Australian Dollars unless otherwise specified

MQA is a very interesting option with a publicly traded asset worth almost 14x its current enterprise value.

MQA was spun out of Macquarie Infrastructure Group (MIG) last week as they split their "good" assets and their "bad" assets into two companies. MQA was the "bad" child and came public at an extremely depressed price of 62 cents. It now trades around 80 cents, but still looks to be significantly undervalued on a NAV basis.

MQA is a fund managed by Macquarie that owns varying percentages of five global toll roads. Each of the toll roads are highly levered, but all are non recourse to the parent. The parent holds no debt and has $228mm in cash. Its market cap is $361mm and TEV is $133mm.

Of the five toll roads, four are privately held, highly levered, and potential zeroes. However, its largest holding is Autoroutes Paris-Rhin-Rhone which trades on the Euronext exchange (ENXTPA:ARR) and has a Euro 5,885mm market cap.

MQA owns 20% of ARR for an implied value of 1,117mm Euros or 1,847mm AUD. This alone is worth almost 14x MQA's TEV. It is possible that some of the other entities have equity value as well but I can't handicap it.

There are some serious risks, which is why I referred to this as an option. I highly encourage anyone who has additional risks to add to please comment.

  • ARR is itself a levered entity with 5.8x debt/EBITDA. Its cash flows are fairly stable and its 2015 bonds trade at 114. Given the huge disparity in valuation of MQA and its ownership of ARR, this is a moderate risk only.
  • MQA, because of the spin-off, removed its high water marks from the previous fund (Macquarie Infrastructure Group). Therefore, it is eligible to receive 2/20 compensation. Given large move in the share price already, this will be a drain on parent cash.
  • There is no catalyst and Macquarie is unlikely to sell their stake in ARR and dividend out the cash to shareholders.
  • Other Macquarie entities own the debt of MQA's more levered entities and MQA management could and may use MQA cash to prop up those entities in order to prevent losses in other funds. This is the most serious risk in my opinion


Public realization of value of ARR after spin-off

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