beta of a toll road?

Going to take a stab: 0

The toll road and market would move independently (as market moving news such as lower interest rates isn't going to affect people using it)

Aren't there funds that manage infrastructural projects? If not, I would say that it must be significantly less than 1

chan.kw:

a toll road? i.e. the 407 ETR in toronto?

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The beta of revenues would be pretty much 0. However, beta of expenses is non-zero since these things are usually heavily debt financed, leaving them exposed to interest rate movements. Build a model assuming variable rates and a typical capital structure, then run regression of interest rate moves against the stock market, multiply sensitivity by slope, and done. Or just find some research on it.

I have a hunch that there's a strong correlation between tolls going into major commercial centers and office occupancy rates. Also between heavily truck-trafficked toll roads and railroads. Since office REITs and railroads both have positive betas, I think the fundamentally expected beta on a toll road- even without financing- will still be positive. It kinda makes sense when the economy is in recession, you see fewer traffic jams and less cars on the road, and you see a reduction in toll collections that is generally going to eclipse reductions in road repair costs.

You can regress the net revenues numbers against the EBITs on the S&P 500, and that should give you a fundamental sense of where the beta lies.

The beta for a toll road is indisputably ZERO.

Why? Its federal spending, entirely unrelated to market movements.

What else has a beta of zero? Cash and t-bonds.

There is no equity component to a toll road. Its fully debt financed. If i wanted to invest in say the construcion of a new bridge, I would buy special muni bonds most likely. Consequently, there is no beta to even talk about.

Obviuously, if this was a private comany with an equity component then you could calculate a beta by looking at similar firms.

For a govt owned toll road though. I dont think thats the case.

The equity component is the state or the government's guarantee of the debt. Or at some point the bondholders start taking on some of the beta.

Again, my understanding is that we are talking about the 22-mile stretch of road that needs to be maintained along with its entrance and exit ramps and toll booths. This can be owned by the state- or it can be sold via a PPP to some private equity shop. My understanding is that the question is about the physical plant and how to value it as part of a PPP deal.

Agree with Illini here. And FYI - debt has a beta too.

Debt is a lot trickier- over the past four years, treasuries have exhibited a lot more negative than positive beta as part of the risk-off trade, but then for corporates and munis, you are throwing default risk in. But yup, it's got a beta too. And in a normal market like we saw in the 70s through 2006, when the fed raises rates to cool off the markets, treasuries and risky products all go down in tandem.

Apart from convertible bonds...when does debt have beta?

Your statement seems impractical...say debt had a beta of one...then with today's market move of 2% down, do you expect the value of the debt to become worth less by 2%.

Debt is affected by moves in interest rates..not index moves.

The beta of a toll road is approximately zero. As a thought experiment, consider regressing a toll road's income vs. daily S&P or BarCap Agg fluctutations. using daily data points extending 10 years. The daily revenues of a toll road are going to see very small fluctuations as it relates to the fluctuations of the S&P and if they do, the slope would likely be statistically insignificant.

Even if you use monthly data as an attempt to take into account employment and shipping fluctuations, at best we're talking a 0.1 - 0.2 if I had to guess.

For your reading pleasure : http://www.meketagroup.com/documents/InfrastructureWP_001.pdf

Well, you are really comparing apples and oranges here raoul. I understand comparing valuation to valuation. I understand comparing revenues to revenues. I do not understand why you would regress revenues against valuation. Let's either try to get a sense of the toll road's beta off of something with a similar revenue profile that also carries a market price- maybe a railroad or an oil refinery in the area, or try regressing the toll road's net revenues against the S&P's EBIT.

Generally, the S&P's EBIT/Assets ratio fluctuates much less than its valuations, and if you factor out highly-levered finance, earnings/equity do too. It's the P/Es that fluctuate wildly. Provocatively, between 2007 and 2009, P/Es dropped from 18 to 9 but earnings actually didn't more than 10% over this period. It was the valuations that plummeted as we went from an economy on the up-and-up to the realization that we were definitely in one of these 15-20 year secular bear cycles.

Nearly all operating assets- aside from a few resource plays during high inflation periods- carry positive betas. When the economy at large is hurting and everyone is trying to hoard cash, it is difficult to pull in more revenue or increase growth.

Debt has a beta. I would guess the beta here is something like 0.2.

Btw, bonds are not my specialty, but I def know enough to know that IP and Oreos are right and Bernankey is wrong (just thought I'd chime in)