Taking its toll

12 Jul 2023

Sector: Industrials

DULLES GREENWAY TOLL INCREASE APPLICATION

Need To Know

ALX files an application to increase Toll Prices at Dulles Greenway by 39.7% maximum peak and 21.9% off peak, starting 1 January 2024
Dulles Greenway has not seen its maximum peak toll increase since April 2019, with the latest off-peak increase taking effect in January 2022
Whilst Greenway is only ~9% of proportional EBITDA in FY23, the application outcome could have a material impact on EPS and we expect ~2-3% upgrades if approved

Investment Implications

ALX announced that it is seeking approval for an increase in the maximum level of tolls for the Dulles Greenway. The increase requires approval by the State Corporation Commission (SCC) pursuant to the Virginia Highway Corporation Act of 1988.

The proposed increase commencing 1 January 2024 for the maximum peak is a 39.7% increase (from $US5.80 to US$8.10) and 21.9% for the maximum off-peak toll (from US$5.25 to US$6.40). The application demonstrates satisfaction of the criteria for consideration of toll rate increases set out in the act.

There is no statutory deadline for a decision from the SCC. Legislation enabling negotiation of a new concession agreement implementing distanced-based tolling could still be passed through a special session, which may be called in July or August 2023.

Investment View

Whilst markets had largely factored in an inflationary-like increase, the proposed maximum charge is well ahead of inflation numbers. The ongoing potential for a change to distance-based tolling also provides a key catalyst to unlocking more value in the asset.

ALX’s cash flows and distributions are defensive and the current yield of >6% is sustainable over the next few years, backed by continuing traffic volume recovery. The weighted average concession life has been materially increased to ~37 years by the recent acquisition of the Chicago Skyway. We retain our Buy rating with potential upside catalysts, defensive cash flows and sustainable distribution, as well as valuation appeal compared to bond yields.

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Stock Overview

Company Overview

APA is a toll road company based in Australia that owns and operates four toll roads in France, Germany, and the United States.

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