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Lower rates are unlikely to provide outperformance, but a bias towards lower quality could In last year''s Intelligent Infrastructure we explained why the sector''s ''bond proxy'' reputation was false. 2023 underlined this view, with the sector outperforming despite further rate hikes. Yet we are still asked whether rate cuts would disproportionately benefit the space (evidently, our answer is No). We continue to expect the sector to lag, but see an inverse relationship between investors'' perception of ''quality'' and the outlook for returns. We downgrade two of the sector''s most-loved names to Neutral (Vinci and Aena) while upgrading two of the least-loved to Outperform (Groupe ADP and Fraport). We initiate on another unloved name with O/P - Hochtief - while reiterating Neutral on ACS. Of the Tollroads and Tunnels stocks, Eiffage is our last remaining Outperform Our cautious views on Ferrovial and Getlink are well-known (though not always well understood), with new analysis underlining this stance. For Ferrovial we believe FCF will disappoint - a risk given we believe the stock is pricing in stronger growth than even large US Tech stocks. Our deep dive into Eurotunnel traffic drivers shines light on why Shuttle volumes have been so weak, but no light at the end of the tunnel in this respect. For Vinci we have done our best to find hidden value, but simply found it is priced in. This leaves Eiffage as the last Tollroad that we believe provides good value - ironically because investors seem to appreciate its GET investments even less than we do. Among the Airports, Fraport is our top pick followed by ADP, with Aena least preferred We remain cautious on the long-term outlook for the European airport sector. However, valuations appear undemanding. We prefer Fraport and Groupe ADP. The Street largely unloves them, but our deep dive into long-term traffic outlook in Europe, airport tariffs and commercial activities suggests upside on all fronts. Fraport is our...
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The Transport sector should cut emissions by 78% by 2040 On Tuesday, the European Commission (EC) set, for the first time, the emission targets for 2040. The EC recommended that the EU cut emissions by 90% in 2040 versus 1990 levels. For the Transport sector, the target is to cut emissions by 73% versus 1990 levels (or 78% versus 2015 levels), with an acceleration in cuts between 2030 and 2040. In more detail, emissions are targeted to drop by 86% versus 2015 levels for Road transport, 79% for Maritime, 75% for Rail, and only 28% for Aviation. Next step, the target needs to be approved by the EU parliament. The target is hard, but not impossible In our view, it will be hard to decarbonise the Heavy Vehicles and Aviation sub-sectors. For this reason, our analysis suggests emissions may fall short of the EU target. However, the delta is not too large - nor do we pretend our estimates have scientific accuracy. Certainly, the target for the sector as a whole is not impossible. The key reason for our constructive stance is the accelerating penetration of electric vehicles along with a further mandatory switch from fossil fuels to sustainable fuels - the EC has just increased the blend requirements for Sustainable Aviation Fuel from 2040 - and more stringent emission requirements for diesel-powered trucks. More regulation, more costs and a very tough target by 2050 The new target for 2040 is a positive signal on the path to decarbonise the Transport sector. If the target is achieved, the sector may not be the ''problem child'' of Europe anymore. But costs are likely to increase. And reaching net zero by 2050 remains very tough, with time very much of the essence. We discussed the implications in detail in our recent report TRANSPORT and INFRASTRUCTURE: ESG: Problem child or problem solver? The time is now.
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Vinci has reported remarkably good Q3 results, with all business segments showing strong performances, except for Vinci Immobilier. Vinci’s operations are maintaining robust momentum, evident in the double-digit growth in order intake during the Q3, which increases the order book to almost 14 months of average business activity. Vinci has upgraded its FCF guidance to at least €4.5bn thanks to an improvement in WC.
Vinci VINCI SA
With the success of Fit-for-55 and 2050 Transport targets intertwined, time is of the essence In our previous ESG report from Sept-2021, we explained why Transport has been Europe''s problem child to-date, being the only sector to see net emissions rise over the past three decades. The tide is now turning, with our analysis suggesting the EU''s Fit-for-55 target of a 16% reduction in the sector''s emissions by 2030 are attainable. The EU''s corresponding 2050 target of a 92% reduction is much tougher however, with time very much of the essence. If the Transport sector can achieve its targets, Fit for 55 may succeed too. If not, failure appears inevitable. With the path to decarbonisation clear for Cars/Vans, Trucking and Aviation hold the key With Road transport accounting for 76% of emissions within the Fit-for-55 scope, decarbonisation will be key. While the pathway for Cars and Vans is clear this is not true for Heavy vehicles; problematic given Trucks account for c.40% (and rising) of Road emissions. This is not due to technology but rather the availability of charging infrastructure, which is especially problematic for Heavy vehicles given the need to re-charge mid-journey. Reducing Aviation emissions is also important, but much remains to be proven on the availability of sustainable aviation fuels, with only so much the Airlines can do - all of which underlines the importance of decarbonising Trucking. If 2050 targets are to be hit, everybody needs to play their part - investors included For 2050 targets to be achieved, everybody will need to play their part. Yet during the marketing of our Sept-2021 ESG report one observation stood out - that other than ESG specialists who are paid to care, we sensed that for most investors, the primary ESG consideration was box-ticking. The awkward reality is that this apathy translates into corporate behaviour, which can result in lip service prevailing over meaningful action and being seen to do the...
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Vinci delivered a strong set of H1 2023 results, with revenue and EBIT slightly exceeding the consensus expectations. Net income stood at €2.1bn, up by 13% on a reported basis despite higher financial costs. Given a sharp traffic recovery in concessions and a higher business level in the contracting activities, Vinci re-iterated its full year guidance which is already reflected in our estimates.
Vinci released impressive Q1 results, with all business segments performing well except for Vinci Immobilier. Sales amounted to €15 billion, reflecting a year-on-year increase of 17% and like-for-like growth of 14%. The order book also rose by 10%, equivalent to almost 14 months of average business activity. With the strong and sustainable order book, Vinci confirmed its FY23 guidance.
Our view remains unchanged that the Infra sector will struggle to outperform in the 2020s In our previous Intelligent Infrastructure reports from Sep-2020 and Mar-2022 we argued the European Infra sector''s similarities to a bond proxy during the 2010s were largely coincidental. If there was any remaining doubt in this respect, the past year surely ended the debate. Bond proxies devalue when rates rise. The European Infra space did the opposite, outperforming the MSCI Europe ex-Financials by 22% during a year that saw the largest base rate hikes since the 1990s. For obvious reasons this is good news rather than bad. But our view remains that the sector will struggle to outperform the broader European stock market during the current decade, as has been the case so far (since January 2020, each of our stocks has lagged despite last year''s outperformance). But some stocks will outperform, with the ability to grow revenues with inflation set to be key Given our Strategy team''s expectation that both inflation and rates will remain elevated, the ability of Infra assets to grow revenues with inflation has grown in importance. We see significant differences across the sector in this respect, which is the single main determinant of our stock selection process. Of the Tollroads and Tunnels, Vinci/Eiffage screen best with Ferrovial/Getlink least preferred While the French Tollroads are well protected in this respect with CPI-linked tolls (we reiterate Outperform on Vinci/Eiffage), our analysis suggests Canada''s 407 ETR may not see any toll increases for years, while investor positivity towards the US Managed Lanes will be eroded. While Ferrovial (-) has the most North American exposure, this is also now relevant for ACS given its acquisition of the SH-288, leading us to downgrade to Neutral. With pressures on Eurotunnel revenues set to continue and capex likely to rise, we reiterate Underperform on Getlink. Among the Airports, we remain cautious with...
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Vinci has published results ahead of expectations, with revenues up 25%, due to external factors such as the effect of changes in the scope of consolidation (+12.5%) and favorable exchange rates (+1.5%). Thanks to its sound financial management, the group registered a record level of FCF allowing the dividend per share to be increased to €4.00. However, for FY23, the group has adopted a conservative outlook.
Reiterating Outperform; TP unchanged at EUR121 Following the surge in Vinci shares over the last 4 months (+29% from the October trough), we have recently been asked by several investors whether this upward trend can continue. Our answer is yes, for three main reasons; (i) the likelihood of robust H2 results; (ii) remaining upside to our conservative SOTP-based valuation; and (iii) the likelihood of a FY22 dividend that screens well on a low-3% yield. Investors should also be cognisant that Vinci is nearing fair value however, with another 10-15% upside representing ''job done''. Reason #1: FY22 Free Cash Flow could exceed guidance While investors are generally relaxed on the outlook for H2 2022 profitability, there are some nerves on FCF, for which Vinci has guided for EUR4.5bn. In this respect we estimate FCF exc. w/c movements of EUR5.1bn, the highest on record by some distance (+35% vs. EUR3.8bn in 2019). A w/c outflow of EUR0.6bn is certainly possible, but would require a deterioration of DSO and/or DPO. Our analysis suggests upside risk to guidance, with BNPPE at EUR4.9bn - see Figure 1. Reason #2: our conservative SOTP valuation continues to provide good upside In our SOTP, we continue to value Contracting operations conservatively, applying a 10% discount versus peers, including some peers which are arguably of a lower quality. Our EUR121 target price provides 16% upside nonetheless. Reason #3: a 3% dividend yield ''cross-check'' gives EUR127/share While the basis for our TP remains a detailed SOTP, we continue to cross-check our valuation against the metric on which Vinci most consistently trades - a low-3% dividend yield (average 3.4%; see Figure 2). With our analysis suggesting a FY22 dividend of EUR3.8 based on a c50% payout, this equates to EUR127/share. Importantly, given that Vinci talked about progressively raising the payout ratio from 50% pre-pandemic, risk to our DPS estimate could be to the upside.
New investigation, old case On 9 November 2022, a French judge placed Vinci under formal investigation over allegations it violated the rights of migrant workers in Qatar. This is not a new story. Allegations against Vinci started in 2015, when the NGO Sherpa filed its first compliant with a French Court, which later dismissed the case. We dig deeper to assess the impact of the new development. Vinci has not been proven guilty After the first failed attempt, Sherpa filed a new complaint in 2018. Four years later, a judge this time has decided to move the case forward. Next, we understand there will be a ''QandA'' phase in which the judge will question all parties. After that, the judge may start a formal Court trial. Qatar: a challenging environment for migrant workers Qatar has been a focus area for NGOs for years over poor working conditions of immigrant workers. The main problems were Qatar''s ''Kafala'' system of sponsorship-based employment and muddy recruitment practices in South Asian countries. In our view, the problems went well beyond Vinci. We retain our ''Average'' ESG rating for Vinci In our ESG sector note TRANSPORT and INFRASTRUCTURE: ESG: Europe''s problem child, we rated Vinci ''Average'' on ESG metrics. Despite the negative newsflow, we reiterate our rating. At the time of the alleged wrongdoing, Qatar was a difficult place reputationally to do business. We believe that Vinci was caught up in a bigger issue that was ultimately driven by poor labour practices in the whole country and progress has subsequently been made. Shares may face some selling pressure in a distant ''worst-case'' scenario There may be some selling pressure if the trial goes ahead, Vinci is found guilty, and ESG funds decide to sell their shares. However, this ''worst-case'' scenario may take years to unfold.
Vinci’s 9M figures were better than expected. Revenues were up by 26%, with international revenue up by almost 50%. A strong recovery at airports and a buoyant activity level across the other businesses were supported by two external drivers: 1/ the scope effect from Cobra IS integration and 2/ favourable FX due to the increased geographical footprint. The orderbook remained at an all time high of €57.4bn, up 26% yoy and, stripping out Cobra IS, it was still up 2%.
Vinci published excellent H1 22 results. Revenue and EBIT were above consensus by 4% and 16% respectively. The net income stood at €1.9bn, up by three times yoy on a reported basis. Given a sharp traffic recovery in concessions and higher business level in the contracting activities, Vinci re-iterated its full year guidance of net profit above the 2019 level. Following these results, we will upgrade our estimates, which will have a positive impact on our target price.
Vinci published strong Q1 figures, supported by the traffic recovery in airports and the integration of Cobra IS. Sales stood at €12.8bn, up 26% yoy and 12% lfl. The order book was up by 20% (including Cobra IS), representing more than 15 months of Vinci Construction’s and 10 months of Vinci Energies’ average business activity. Given the current geopolitical instability, Vinci has decided not to raise its FY22 guidance despite the robust performance in this quarter.
Vinci has announced its FY21 results with revenue and EBITDA just 3% above our estimates but net income significantly higher than our expectations (+10%), standing at €2.6bn. Concessions was up by 20.7%, Energies up by 10.5% and Construction up by 13.5%. Free cash flow stood at a record high level of €5.3bn, and a dividend of €2.9/share was announced. Following these results, we have revised our estimates, resulting in a slight increase in the target price.
Vinci published better than expected 9M results, with revenues above our expectations, especially in the Autoroute segment. Revenues from its contracting business have already surpassed the 2019 level, and the company has guided that we can expect something similar for margins too. We have slightly revised our numbers upwards and re-iterate our Buy recommendation.
Vinci published better than expected H1 21 results, with the Construction and Energies business in line with H1 19’s and also traffic on motorways catching up with the 2019 level in July. Traffic at VINCI Airports continued to suffer, with traffic at Gatwick airport down by 96% vs H1 19. For the full year, management expects revenues and margins to exceed the 2019 level for the contracting business, but has not provided any guidance for its concession assets.
Vinci published better than expected Q1 results, with sales above market expectations. Its energy business showed resilience and the construction business saw a positive trend on top of a weak comparison base, especially in France (last two weeks in Q1 20 were subjected to complete lockdown). Its autoroute segment delivered a surprising result, thanks to an exceptional change in traffic trends. Vinci has reiterated its guidance for 2021.
Vinci has announced its FY20 results with revenues 2% above our expectations, but with EBITDA and EBIT largely in line. Concessions was down by 33.5%, while Contracting was down by 5.9% lfl. Vinci Airports reported EBITDA that was better than what we expect for AdP and Fraport, confirming our view that Vinci owns safer Airports. Additionally, Vinci is shifting its investment focus from airports to the energy business. The group has announced a FY20 dividend of €2.04/share and has not provided any guidance for FY21.
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