Why is Anyone Buying RCY?
Why is Anyone Buying RCY?
RiverCity Motorway's security price is down about 27% since I wrote Traffic Trouble for RiverCity last week. Remarkably, the business is still capitalised at more than $100m. It should be close to zero.
Yesterday's apparently non market sensitive traffic numbers were bad. Workday traffic fell from 74,230 on the opening day to an average of 61,799 during the first three weeks. Granted, the week leading up to Easter would normally be weak but, if you remove the first four days when the novelty factor was high, workday traffic has averaged only 57,875 cars per day since. Most importantly, it was still free.
The first tolls were charged yesterday and they'll announce the traffic numbers for the first tolled week next Tuesday. But it's going to take a miracle for this toll road to meet it's interest obligations and I can't understand why anyone is buying the stock. The $100m market capitalisation is $100m too much.
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Hi Steve,
As its still in the S&P/ASX 300 and All Ords Indexes, I imagine several fund managers would have no choice but to buy the stock. Thats the only reason I could think why.
Cheers
mike
There in a nutshell is a ringing endorsement for Index Funds (and yet they continue to outperform active managers, in the long run... go figure)
i purchased a heap of RCY stock today am i crazy?? ask yourself this in 2 years time.
Yeah, the missus and I had to merge with the traffic exiting the tunnel today on its SE exit around 3pm today. We were going very slow and only one car exited te tunnel in about 20 secs. This is the lesser volume exit, but Qldrs are tighter than the proverbial deap sea fish's ah when it comes to paying for something that used to be free.
Nice series of analysis Steve. Any idea when they will run out of cash to service the gap between revenue and interest? Any advise on how to take advantage of this position (other than avoiding buying it!)
Hence the need for us to do it ourselves!
Good question Andrew (and Harry who left a similar comment on the previous post).
On my walk to work this morning I was comtemplating the theortical level at which debt would spiral out of control. Couldn't answer it without a spreadsheet but turns out 54,000 cars per day as a 'steady state' initial number and then 4% EBITDA growth would repay the debt alone in 45 years. Alternatively, 49,000 initial cars and 5% growth would do the same trick.
According to the IM, there should be about $183m in debt service reserves, so they'll survive a few years yet. Doesn't make much sense though if it's obvious equity will end up with nothing.
Thanks for the incredible insight richie. You're clearly an experienced insightful investor.
I read in the courier may similar volumes to what Steve has quoted. The article included the typical percentage drop off when the toll arrives which is 1/2 - 2/3. This leaves in the optimistic case around 30 000 cars per day. The prospectus I believe forecast 60 000?
Good luck with those shares, contact me in 2 years time and let me know how they've gone.
There is a one word explanation: Anchoring.
150 mill ramp up reserve in the bank plus 4 percent interest every year on it 6 mill plus the rev the cars make .... these guys can float for years on 30000 cars a day. just to name a few points on why its a good invest. i agree rich with u m8
The traffic figures for the first week of tolled traffic are out: tinyurl.com/ycxmfvu
RCY are certainly in trouble. The traffic drop off is steeper than the M7 or Cross City Tunnel (down by 2/3 to 20k/day).
Steve, since these figures are for a discounted toll price, do you think they'll even be able to cover their operating expenses? Using the spreadsheet on your previous post, things don't look promising.
Horrific numbers. School holidays or not. I still don't get why it's capped at $30m - they are so far from meeting the debt obligations it's ridiculous.
The last half yearly report showed the tunnel asset carrying value was $1m away from impairment, and that was using the Maunsell traffic forecasts (100,000 a day after 18 months). This quote from that report: "The value in use estimate is sensitive to changes in assumptions regarding traffic. Traffic sensitivities include assumptions regarding length of time to achieve full ramp-up and steady state traffic assumptions. If traffic assumptions over the entire concession period differed to estimates by +/- 5% then the value in use would be impacted by plus $48 million / minus $38 million respectively." Since we are 65% below the projected opening traffic numbers, that means $500m worth of writedowns? Not sure how that looks on the balance sheet?
Id pretty much say your crazy, i traveled in it on the toll free period when it had the highest traffic flow about 60k traffic daily..
It's only 2 lanes on each side and it was packed, this suggests it can really only hold this much traffic maximum before bottlenecks occur. Now that its not toll free its practically dead at night time, which offers no time saving after peak hours.
RCY has huge amounts of outstanding debt with which they wont be able to pay it off even with such a long concession. Gd luck its worthless.
In actual fact this is no reason at all. I do not see any figures tying back to the interest bill they have to pay or the running costs. And if you really think you're going to get that 6% then you are only looking on the optimistic side.
I would love to see a detailed analysis of the figures by Steve as I don't have the time.
Until then, here's some media http://www.couriermail.com.au/business/poor-patronage-puts-tunnel-price-...
Not to mention that if someone breaks down or crashes there is no where for them to go. 1 lane guaranteed to be blocked. And what if it is an accident with a small truck that results in both lanes being blocked?
Couple more million purchased in shares today anyone else notice the price is rebounding? Buy now don’t wait otherwise you will be paying 0.30cent a share grin.
Didn't realise this blog had turned to TA :).
The April traffic figures have been released: http://www.asx.com.au/asxpdf/20100504/pdf/31q5086yk7bhdw.pdf
Not a big improvement in the numbers. They have extended the toll discount period to June 30.
Using the spreadsheet from the previous post they would fall short of covering their opex by $5m over the first year if the traffic stays as is.
Not pretty, not pretty at all. To be honest, I can't believe this thing is still trading at all. It's so far from covering the interest costs it's ridiculous.
Another blow to the efficient markets hypothesis, I suppose.
http://www.asx.com.au/asxpdf/20100504/pdf/31q5086yk7bhdw.pdf
Looks like big big trouble. Maybe they will hit their targets when traffic gets really bad in another 5-10 years.
Share price now 6.9 cents, how long before it is 0.1 cents?
There is some interesting information in this presentation:
http://tinyurl.com/rcy-pres
OPEX budget for 2011 is $34.3m, higher than the PDS. With the published traffic figures and discount tolls they fall $7m short of covering this, and do not even start to pay the $107m finance cost. If traffic doesn't improve they will exhaust their $155m reserves by August next year (well before the first default test in June 2012).
Also this:
http://tinyurl.com/rcy-update
RiverCity have started to publish daily traffic numbers. Their May report is here:
http://tinyurl.com/rcymaytraffic
It is misleading though. They have shown a 28 day moving average, which is biased due to the public holidays in late April / early May. A 7 day moving average shows volumes levelling off in the latter part of May:
http://tinyurl.com/maytraffic
Very dodgy graph, but I guess that's considered 'normal' investor relations. It still has a market cap, much to my surprise.
Good summary here:
http://www.crikey.com.au/2010/07/14/brisbanes-tunnel-vision-numbers-look...
I think if the people of Brisbane were not so tight and miserable the Clem7 would be booming. It is an incredible time saver and a pleasure to drive through. It makes getting from around the PA to the northside or the Airport so easy and quick. We are spoilt here in QLD. Go to Sydney and see what tolls are like. C'mon Brisbane pull your head out of the sand!!!
http://www.smh.com.au/business/15b-written-off-brisbanes-clem-7-20100831...
Final nail in the coffin. I laugh at all the bottom-feeders who thought low share prices meant blue sky opportunity.
http://www.businessday.com.au/business/goodman-group-moves-on-ing-indust...
Tough time for tolls
THE toll-road sector looks set to claim a third victim with RiverCity Motorway Group presenting its audited financial report ''on the basis that an orderly winding-up of the group could occur sometime after September 2011''.
Equity investors in Sydney's privately held Cross City and Lane Cove tunnels have already seen their investments wiped out. With traffic in Brisbane's Clem Jones Tunnel (CLEM7) running at only a third of initial projections, RiverCity is already in discussions with financiers as they search for an option that would allow the group to limp on in its current form until after Airport Link, an important feeder road for CLEM7, opens in mid-2012.
Investors are dubious that Airport Link will be enough to save RiverCity. Securities that were issued for $1 in 2006 closed yesterday at 1.5¢. In RiverCity's June accounts the value of future tolling rights on its 45-year concession was written down from $1.6 billion to a recoverable amount of just $258 million.
[...] if you can come up with something better. And I shouldn’t laugh but some of the comments on Why is Anyone Buying RCY made me chuckle this morning. I do hope Richie Rich was having a lend of [...]
http://www.smh.com.au/business/banks-ready-to-pull-the-pin-on-rivercity-...
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