ALX is a global toll road operator managing a portfolio of high-quality international toll road assets, including APRR (Autoroutes Paris-Rhin-Rhône), Dulles Greenway, and Chicago Skyway in the US. The stock has performed poorly for more than two years, declining by ~40% in a rising market, with falls outstripping its 40c unfranked dividend. However, importantly, we think recent headwinds that have peppered ALX are likely to improve. The company’s business model is simple with two primary variables:
Debt & Earnings:
- ALX has high debt levels, as most infrastructure stocks do, however, as interest rates fall, pressure is expected to ease. In February, Financière Eiffarie (FE), the holding company of APRR, a significant asset within Atlas Arteria’s portfolio, successfully refinanced its debt facilities. The new structure entails an average annual repayment of approximately €55 million over the first five years, significantly reducing previous obligations. CY24 performance was actually solid, with earnings before interest tax depreciation & amortization (EBITDA) of $1.34bn, largely flat on 2023, however we now expect growth in CY25 of ~6%. ALX has maintained dividend guidance of 40c for this year, though, they are dipping into cash reserves for a portion of it (~15c) which is not ideal.
Traffic:
- Traffic volumes on its toll roads have been recovering and this is the key, particularly in France (its largest market). Still, overall, its diverse toll road assets exhibited a mix of traffic growth and declines in 2024, influenced by regional factors, as extreme weather in Chicago partly offset the migration away from work-from-home (WFH) trends that emerged during COVID.
We believe ALX is reasonably well-positioned to maintain its 40c dividend over CY25 & 26, putting the stock on an attractive 8.2% yield. The damage is over on the downside, and the risk-reward looks particularly attractive on any dips toward $4.50.
- We expect ALX to trade between $4.50 and $5.50 through 2025 while paying a very healthy dividend along the way. The potential upside comes new management and better traffic flows, which we don’t believe are captured in the current price.
MM is bullish ALX below $5
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