First State Global Listed Infrastructure manager Peter Meany has seen his overweight to European toll roads come good over the past 12 months as the region continues to recover.
Citywire + rated Meany added selective European toll road and airport operators when European sentiment was at a low two to three years ago.
In the following period, Meany has watched as many have started to approach fair value from what were formerly very depressed valuations.
French toll road operator Vinci remains the €900 million fund’s largest holding, although Meany has taken some profits on Spanish peer Abertis after a strong run.
He also owns Australian toll road operator Transurban and Italian toll road group Atlantia.
He told Citywire Global: ‘Abertis has seen an exceptional rise this year and has effectively restructured the business and had some successful asset sales.’
Meany said toll roads have benefited from a pick-up in traffic volumes in Europe, after fears of a dramatic slowdown had hurt share prices over the past three years.
‘However bad things get people will continue to drive on roads and traffic numbers are enjoying a strong recovery.’
‘French toll roads were down 5% in volumes in previous quarters but are now up about 2%. Italian volumes were down 7% year on year but are now flat so we have seen a stabilisation and now the start of some positive growth.’
Along with toll roads, the fund is also overweight freight rail companies, which are also starting to benefit from growing strength in global commerce.
Meany has a 4% stake in Asciano in Australia, along with US freight firms Norfolk & Southern and Union Pacific on the US West and East coast respectively.
He also counts Eurotunnel, a top 10 holding, within the sector for its freight volumes and overall the sector makes up 11% of the fund.
‘Sentiment on China was very poor over the past 6- 12 months and we have always struggled to invest directly in the country but we can play it indirectly through companies live Asciano.’
‘Asciano exports coal to China and recently volumes have bounced back from declines. The declines we saw 12 months ago led to the stock being sold off to 12 times earnings when traditionally it sits at around 15 times earnings.’
Meany’s US freight holdings are also enjoying a renaissance on the back on the much improved US economy.
Meany said that the shale gas boom has aided recovery at the margins as energy pipelines and crude oil and gas are transported by trains.
However, most of the uplift in freight volumes has come from a recovery in the US housing and autos markets, although a stabilisation n coal prices has also helped.
Elsewhere, Meany has moved to a slight underweight on mobile tower masts after strong growth, although he continues to hold American Tower and Crown Castle within his top 10 holdings at 3.9% and 3.7% respectively.
‘Around 30% of American Tower’s exposure is to emerging markets while Crown Castle is a pure US and Aussie play. We still see good growth opportunities in the tower sector and the roll out of 4G is helping them to deliver 10% compounded annual growth.'
‘Both companies have recently completed acquisitions of towers from telecom operators which have boosted cashflow but Meany has moved to a slight underweight on the sector as he thinks they have run ‘a bit too hard.’
Some of the proceeds were recycled into French satellite firm Eutelsat which had been sold down on concerns about cutbacks in US military spending.
‘Structurally we still see long term demand for its products although it faces some short term headwinds.’
Positive on UK utilities
Meanwhile Meany has boosted his exposure to UK utilities on the back of a more transparent and market friendly regulatory environment.
The fund owns National Grid, Scottish and Southern Energy and US firm PPL Corp, which recently bought some of Eon’s energy network in the UK.
‘With National Grid you now have eight years of certainty and the expectations of the UK regulatory market are well understood by the market.'
Meany said infrastructure stocks have done well along with equities generally in recent months so uncovering mispricing opportunities has become more difficult.
Over five years to the end of October, the fund has returned 77.1% compared to 61.8% by the UBS Global Infrastructure & Utilities 50-50 TR benchmark index in euro terms.