Toll firm may take public plunge

CURRENT ACCOUNT:For more years than he can care to remember, Current Account has been musing about the likely flotation of NTR, the company we used to know as National Toll Roads but which has now diversified into other infrastructural projects.

NTR is a public company in every way other than having a stock market listing. Most of its shareholders - with the exception of the Roche family - are institutional investors who at some state stage will be looking for a more structured market for their investment; the shares are traded on an internal market operated by company broker Davy.

NTR has in the past always said that it would float when the time was right and hinted that a flotation might be timed to coincide with a major new infrastructural project. Now Davy, in a new research note on NTR, suggests that a flotation may be in the pipeline from early next year onwards.

NTR shares last traded on the internal market at €7.20 and this values the group at €169 million. Now Davy's Florence O'Donoghue has put a sum-of-the-parts valuation on the company of €14.90 a share and that values the group at more than €350 million.

That valuation does not take any account of any major public-private partnership toll roads contract that the Celtic Roads Group joint venture might win under the National Development Plan. NTR has a one-third stake in Celtic Roads with Spanish group Dragados and HBG holding the balance.

But competition for these enormous NDP projects is intense with five other international consortia having been established to pitch for the contracts. These include: Erin Route - a consortium consisting of Carillion, Balfour Beatty, Egis and WS Atkins; Eurolink, comprising SIAC, Cintra and Ferrovial; Direct Route, made up of Brown & Root, Strabag, Sisk, Lagan and Roadbridge; Vinci Hegarty and Sli Nua, a consortium made up of Morrison,. O'Rourke, Barclays, Intertoll and Halcrow. According to Davy, Celtic Roads is targeting an initial success rate of one out of the first three road PPPs which are expected to be announced over the next few months by the National Roads Authority.

But the Davy sum-of-the-parts valuation on NTR, sensibly enough, does not include the one-third stake in Celtic Roads, although that €14.90 a share valuation might be radically altered if the joint venture does get one of the big PPP roads contracts.

The vast bulk of Davy's valuation on NTR is still based on the existing toll roads business which is worth between €220 million and €310 million while the 88 per cent stake in the Celtic Waste is estimated to be worth €80 million and €90 million. The stake in the Celtic Anglian Water joint venture is valued at €10 million while the 51 per cent of the Airtricity electricity venture is valued at €37 million.

Based purely on finances, NTR has no immediate need for equity funding with last year's €162 million debt facility more than adequate to meet short-term needs.

Interest payments last year were covered 9.5 times by operating profits while the end-2001 net debt of €58.8 million is modest given that the two existing toll bridges will generate €15 million in cash even after the expenditure on the second West-Link bridge.

But capital expenditure over the next couple of years will be very heavy, judging by the Davy report with €110 million in the current year, mainly on the Irish Sea wind farm. That will be followed by another €210 million capital expenditure next year, bringing net debt to €310 million.

That would bring interest cover down to just over 3 times, based on the Davy projection. That sort of interest cover is still prettry comfortable given the volume of free cash that NTR generates. But it is also a balance sheet that could benefit from the injection of equity capital that a flotation could bring.

Defensive cash-generating stocks are currently in vogue. If they are still flavour of the month in the first half of next year, don't be surprised to see NTR finally take the plunge and become a listed public company.