We’re expecting a material lift in earnings and cash flow, translating into much higher dividends for shareholders over the next 3 years. In 2020, we expect shareholders to receive dividends of 37 cents, up a staggering 19 cents (+106%) on the 18 cents paid to shareholders in 2016. Such change in fortunes would normally be akin to higher risk cyclical companies, MQA is quite the opposite with very defensive earnings from a portfolio of toll roads. Their main assets are an interest in the French toll road Autoroutes Paris-Rhin-Rhône (APRR) and full ownership in the U.S. toll road Dulles Greenway. Revenues (traffic growth and toll increases) are typically correlated to population growth and inflation while costs are linked to inflation. As such, if toll roads are well established with traffic trends understood, then the assets can be run with more debt than most companies. APRR is the most significant asset for MQA. The toll road is well established with predictable earnings and a history dating back to 1961. While the road has performed over the years, APRR has not performed nearly as well with debt management hampering the performance. Fast forward to today and we have a company who has and will continue to take advantage of cheap European debt markets to refinance very expensive debt. The refinancing process for MQA is well underway with 4.7 billion Euro (out of a total 9.4 billion Euro) fixed at a weighted average cost of approximately 2%. Over the next three years they will refinance in excess of 3.0 billion Euro that currently has a cost of approximately 8.5%. The most recent refinancing of 500 million Euro was completed by APRR in May 2017 with a 1.625% coupon and a 2032 maturity. The debt markets are open and hungry for APRR debt! Significant interest savings will occur over the next 3 years, which will translate in to higher profits for APRR and MQA. The other asset owned by MQA, namely Dulles Greenway continues to perform strongly and we expect it to be in a position to distribute cash flow annually to MQA from 2019 onwards. MQA is externally managed by Macquarie Group. We believe Macquarie have done a good job since MQA listed (2010) on the stock market and have been paid handsomely in the process. We believe internalisation of management i.e. bring in house would deliver significant savings to MQA shareholders. Where to from here for MQA and why should its share price trade higher?

• APRR to deliver a significant uplift in cash flow from a combination of traffic growth and material savings in interest on debt;
• Dulles Greenway to start distributing cash flow for the first time in 2019;
• Internalisation of management a distinct possibility and we expect this would deliver significant savings to shareholders.

In addition to the catalysts mentioned above, on our forecasts MQA looks cheap on a EV/EBITDA* multiple at approximately 10x versus its ASX listed peers Transurban, Sydney Airport, APA Group, and Spark Infrastructure trading on average 30% higher. Our 18 month target price is $6.55 based on our DCF valuation. We expect dividends to grow from 18 cents in 2016 to 37 cents in 2020. We are cautious some other expensive defensive names Sydney Airports (SYD) is a long duration asset with an 80 year concession life and are benefiting from the growing number of inbound Chinese tourists. Investors are paying the highest multiple of the listed ‘defensives’ for a business that has structural risk with a second airport proposal threatening their monopoly. Transurban (TCL) has a similar average concession life and 1 year forward dividend yield to MQA. TCL however still needs to fund the Western Distributor toll road in Melbourne, and are bidding as part of a consortium to build and operate Westconnex in Sydney. We believe TCL may require significant future capital raisings to fund this growth. Spark Infrastructure (SKI) operates regulated electricity distribution assets in Vic and SA. We find it very surprising the market is willing to pay an all time high Regulated Asset Base multiple for an asset when the future for generation is so uncertain. Think disruptive renewables and battery storage. Multiple catalysts for MQA and an undemanding valuation relative to its peers puts MQA at the top of our defensive stock picks. *Like the Price Earnings ratio, the EV / EBITDA ratio is a measure of how expensive a stock is.