Why did the Atlas Arteria share price just dive 16%?

The Atlas Arteria Group (ASX: ALX) share price is down 14.85% today.

Shares of the toll road operator trade for $6.65. Earlier today, shares dipped to an intraday low of $6.38, and peaked late morning at an intraday high of $6.75.

The S&P/ASX 200 Industrials Index (ASX: XNJ), of which Atlas Arteria is a part, is only down 1.87%. So, what’s going on?

The company made a significant announcement today, so, let’s investigate what happened.

What’s going on with the Atlas Arteria share price?

This morning the company announced the completion of its institutional component of entitlement offering for new ALX securities. This offer raises a total of $2.5 billion from the settlement of 403.5 million stapled securities which it expects to issue on 26 September.

Using the funds, Atlas Arteria will acquire a 66.67% stake in the Skyway Concession company. This includes partial ownership of the Chicago Skyway, where some red flags are being raised, according to insiders and commentators.

An audit will be completed for the bridge if the intended acquisition moves ahead. The company notes “there is a risk that these post-completion audits may identify the need for capex expenditure beyond what has been budgeted,” as reported by The Australian.

Skyway Concession company acquisition lampooned

Atlas Arteria’s biggest shareholder, IFM Investors, are critics of the deal. IFM’s head of infrastructure Kyle Mangini and executive director Aaron McGovern describing the deal as “significantly value destructive”, stating:

We do not believe the company could construct any credible set of parameters or assumptions in order to justify the pursuit of the Chicago Skyway acquisition.

Macquarie analysts also agree with some parts of IFM’s evaluation of the deal, focusing on the weakness of the Chicago Skyway.

The analysts said:

Traffic has been a material disappointment on the road. There once was expectation of growth, but this never eventuated and ultimately traffic is down 20 per cent on 2005 and 2.5 per cent on 2016. Core issues we think are population growth is weak, there is an alternative corridor and users are more price-elastic than normal roads.

However, the Macquarie analysts also said that “strategically, the acquisition gives Atlas scale”. And noted, “that strategic gain is at the expense of the dividend and dividend growth”.

Atlas Arteria dividends will continue in FY22 and FY223

Despite the possible long-term weaknesses of its dividend, the company said it would continue its hefty 40 cents per share dividend in the immediate future for FY22 and FY23.

My Fool colleague Brooke notes that the company has “considerable debt capacity,” with future dividends likely paid out of capital releases.

The company notes its dividend is “sustainable” after acquiring a stake in Skyway Concession.

Atlas Arteria share price snapshot

The Atlas Arteria Group share price is down 3.9% year to date. That’s considerably better than the S&P/ASX 200 Index (ASX: XJO), which has lost 9.3% over the same period.

The company’s market capitalisation is $7.48 billion.

The post Why did the Atlas Arteria share price just dive 16%? appeared first on The Motley Fool Australia.

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More reading

• Atlas Arteria share price remains on ice amid $3 billion cap raise
• Atlas Arteria share price halted amid $2.9 billion acquisition
• Why is the Atlas Arteria share price hitting the headlines on Monday?
• Atlas Arteria share price drives higher on record dividend guidance
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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