In The Snowball, a biography on world famous investor Warren Buffett, the biographer Alice Schroeder recounts a childhood story of Buffett imagining setting up a toll near his home and being able to charge every car that passed along – he was born a capitalist some might say! Years later he was still imagining the joy of owning a toll stating:
“In an inflationary world, a toll bridge would be a great thing to own because you’ve laid out the capital costs. You built it in old dollars, and you don’t have to keep replacing it.”
The concept of owning a toll – whether it is a bridge, a road, a railway or some other monopoly infrastructure asset – is appealing because generally there is no other alternative, which forces people to pay the toll. In some instances there is an alternative, but that option if far less appealing (imagine a 2 hour drive to the next bridge which doesn’t have a toll) making the toll option still preferable.
So what are some ‘toll bridge equivalents’ available to Australian investors?
Sydney Airports (ASX: SYD) owns the primary gateway for airline passengers into and out of Australia. Every plane that lands and take-off from its runways must pay a fee (or toll) to do so. The Airport also charges its customers for terminals, facilities, retail space and car parking for which there is little in the way of convenient alternative options. As the only international airport and most conveniently located airport in Sydney this is a prized asset.
Transurban (ASX: TCL) is an owner and operator of toll roads. Arguably its most well-known assets is the Melbourne CityLink network. Unlike Sydney Airport where there is little alternative and effectively a monopoly, Transurban doesn’t have a monopoly. Commuters can chose to avoid the toll and use the public roads however the congestion and time added to the journey, makes the option of using Transurban’s toll roads desirable to many and the toll worth paying.
Macquarie Atlas Roads (ASX: MQA) is an Australian-based developer and operator of toll roads with assets located in the USA, UK, Germany and France. Like Transurban the convenience factor plays a big part for commuters on Macquarie’s toll roads who otherwise face significantly longer commute times.
The term “toll” from an investment standpoint should be thought of metaphorically, as well as literally by investors. Tolls on hard assets like infrastructure can be great investments, but so can tolls on soft assets too.
The ASX (ASX: ASX) is an example of a toll people must pass through. While there are alternative stock exchanges, if you are an Australian, investing in the Australian market, it is very convenient to use the ASX. Likewise, if you are an Australian company looking for a stock market listing, the ASX is also very convenient. There are a number of ‘soft toll’ examples like this, so investors should stay alert for tolls in all sorts of places!
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.