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The bad child

Macquarie Atlas Roads Group Limited (MQA) was formed from the split of Macquarie Infrastructure Group into a “good” toll roads business and a “bad” toll roads business.

We were drawn to MQA, the "bad" child. We reasoned that in the face of such adverse publicity few would bother investigating the stock prior to selling it shortly after it had been distributed to them as a result of their original holding in Macquarie Infrastructure Group. MQA made its debut at a slight premium to the net cash held at holding company level, with no value attributed to the value of its other assets.

If such investors had investigated, they would have found that MQA’s assets comprised a collection of toll roads. Each of these toll roads were highly leveraged and some were unlikely to survive. However, all of the debt at the toll road level was non-recourse to MQA. No matter what, MQA was not going broke with no debt and $228 million of cash.

Most notably, MQA held an interest in a toll road company in France that trades on the Paris stock exchange with a market capitalisation of around €6 billion. Although the structure is complicated, MQA at the time of the split-off owned around 20% of this asset: worth roughly A$1.8b. Put another way, this asset alone on a look through basis was worth around 13 times the enterprise value of MQA at the time.

We initiated a position at an average price of $0.85, which we considered too low a valuation. We sold the stock once it reached $1.41 for an investment gain of 65%.