On Wednesday, Citi initiated coverage on Atlas (NYSE:ATCO) Arteria (WA:ARRP) Ltd. (ALX:AU) (OTC: MAQAF), assigning the infrastructure stock a Buy rating and setting a price target of AUD5.80. The toll road operator, which manages assets across France, Germany, and the United States, has been recognized for its solid dividend payout and expected cash flow growth.
Atlas Arteria currently offers a dividend yield of 8%, which is considered attractive by the firm. Additionally, Citi anticipates a strong free cash flow growth of 14-15% for the fiscal years 2024 and 2025. The company's valuation also appears to be discounted, with the stock pricing implying an EV/EBITDA multiple of 5-7x for Atlas Arteria's business excluding the Chicago Skyway, based on comparable private market transactions for U.S. toll roads.
Citi sees potential medium-term benefits for Atlas Arteria, including the end of the distribution lock-up at Dulles Greenway and the possibility of a takeover. These factors could provide significant upside for the company's stock in the near future. However, the firm also notes that additional taxes on APRR, one of the company's concessions, pose a key near-term risk to the outlook.
Atlas Arteria's portfolio boasts an average concession life of approximately 12 years, which underscores the long-term nature of its infrastructure investments. The firm's positive stance on the stock is grounded in these fundamentals, despite the risks mentioned. The price target of AUD5.80 reflects Citi's confidence in the company's performance potential and strategic positioning within the toll road concession industry.
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