Joseph Wang Financial - Analyzing the Results of the Toll Road Concessions
Motorway concessions business are very stable but relatively low growth. That makes them a low risk investment.
To build a highway takes a lot of money, always with lots of debt financing also very high. Because of this early in the grant have accounting losses are reduced gradually as they are returning the opening credits. When the lease is ripe becomes a major generator of cash, as their incomes are very stable and recurring maintenance costs are relatively low. They are long term investments. Since the construction of the highway until it generates cash in large quantities may take decades or even decades, depending on the specific project and obtained funding for it.
In its mature phase is one of the less risky business there, while often deliver high dividends to its shareholders. The downside is that these dividends typically grow at rates relatively low. An investor should always aim their investments grow at rates higher than inflation to avoid losing purchasing power. Therefore it is important to note the following when analyzing a highway concessionaire:
Average Daily Traffic (ADT): The average number of vehicles on the highway daily. The aim should be that the IMD grow in the long term at rates higher than they do the GDP of the country. could say that GDP is the average growth of wealth of a country, and therefore the aim should be to grow above the average. So what if one year the IMD fails to exceed the GDP, the important thing is the long-term average. To do this the company must put its highways in areas of higher growth and economic activity in the country.
Debt: All companies have debt, but the toll road concessions have a number of debt much higher than normal in the early years of its concession. It is especially important that the company properly manage this debt, get the lowest interest rate possible, and so on. It depends on the grant reaches maturity and begins to distribute dividends to its shareholders as soon as possible, and future growth of the dividends. Companies usually communicate regularly the average cost of debt is the interest rate they are paying at the time. A few tenths of a difference can cause much greater differences in both company profits as dividends distributed.
Rates: Rates of highways generally are regulated by the state, so that companies can not set prices freely. Therefore it is important to follow the agreements reached by the companies with the respective states to determine tariffs in the coming years. The increase in these rates are often tied to inflation, establishing a differential on this. The important thing is that long term these rates grow faster than inflation, so that shareholders will not see their wealth diminished.
Broadly speaking, the growth in earnings per share ( EPS ) and dividends of a company of this type is determined by the growth of the IMD and fees, not to mention the cost of debt. In general, the greater the differential between the IMD and the GDP and growth rates of inflation and the higher the EPS growth and dividend of the company.
To build a highway takes a lot of money, always with lots of debt financing also very high. Because of this early in the grant have accounting losses are reduced gradually as they are returning the opening credits. When the lease is ripe becomes a major generator of cash, as their incomes are very stable and recurring maintenance costs are relatively low. They are long term investments. Since the construction of the highway until it generates cash in large quantities may take decades or even decades, depending on the specific project and obtained funding for it.
In its mature phase is one of the less risky business there, while often deliver high dividends to its shareholders. The downside is that these dividends typically grow at rates relatively low. An investor should always aim their investments grow at rates higher than inflation to avoid losing purchasing power. Therefore it is important to note the following when analyzing a highway concessionaire:
Average Daily Traffic (ADT): The average number of vehicles on the highway daily. The aim should be that the IMD grow in the long term at rates higher than they do the GDP of the country. could say that GDP is the average growth of wealth of a country, and therefore the aim should be to grow above the average. So what if one year the IMD fails to exceed the GDP, the important thing is the long-term average. To do this the company must put its highways in areas of higher growth and economic activity in the country.
Debt: All companies have debt, but the toll road concessions have a number of debt much higher than normal in the early years of its concession. It is especially important that the company properly manage this debt, get the lowest interest rate possible, and so on. It depends on the grant reaches maturity and begins to distribute dividends to its shareholders as soon as possible, and future growth of the dividends. Companies usually communicate regularly the average cost of debt is the interest rate they are paying at the time. A few tenths of a difference can cause much greater differences in both company profits as dividends distributed.
Rates: Rates of highways generally are regulated by the state, so that companies can not set prices freely. Therefore it is important to follow the agreements reached by the companies with the respective states to determine tariffs in the coming years. The increase in these rates are often tied to inflation, establishing a differential on this. The important thing is that long term these rates grow faster than inflation, so that shareholders will not see their wealth diminished.
Broadly speaking, the growth in earnings per share ( EPS ) and dividends of a company of this type is determined by the growth of the IMD and fees, not to mention the cost of debt. In general, the greater the differential between the IMD and the GDP and growth rates of inflation and the higher the EPS growth and dividend of the company.