Ferrovial reported top-line figures which were better than expected due to the favourable construction market. However, the slower traffic recovery, especially on its motorways, led to lower equity-accounted contributions. Ferrovial expects traffic to recover soon on its motorways once the situation is normal and anticipates a 67% yoy increase in traffic at Heathrow, but has not provided any further quantifiable guidance. It has completed divestments worth €501m, and has proposed a total scrip d
Companies: Ferrovial (FER:BME)Ferrovial, S.A. (FER:MCE)
Ferrovial continues to be impacted by low traffic on its infrastructure, as reflected in the low income and dividends from these assets (-40% yoy). Additionally, management reassured that there is a limited risk of a Heathrow capital injection.
Revenues were up by 11% lfl courtesy of the construction business which benefited from a low comparison base. However, NI was unsurprisingly low due to a negative contribution from equity-accounted assets and discontinued business. We will revise our numbers downwards post this release.
Companies: Ferrovial, S.A.
Ferrovial posted lfl growth of 12.2% on the back of a weak comparison base. The net result, which includes the equity-accounted result, stood at €-379m (vs €-6m in H1 19). Heathrow has a strong cash position but AGS is suffering and may require an equity injection. All toll roads except LBJ are well above the dividend lockup ratio. LBJ might join this club too if Ferrovial executes a favourable refinancing. Lastly, Ferrovial sold a 5% stake in Budimex but should retain the rest.
Ferrovial announced Q1 20 results showing significant growth in the construction business and a stable contribution from managed lanes. EBITDA was affected by the €-39m restructuring provision and the bottom-line was significantly affected by the weak airport assets. Ferrovial is financially stable with Heathrow capable of surviving 12 months with no revenues.
Ferrovial Group has published its consolidated results which came in better than our expectations but broadly in line with the consensus. The Toll Roads segment outperformed our expectations, while the losses in Construction were greater than anticipated due to an additional standalone loss of €-49m reported by Ferrovial Agroman. The possibility of Heathrow’s expansion has diminished, yet management has expressed its interest of keeping its stake in this asset. The company has proposed a scrip dividend of €0.75/share.
Principal infrastructure assets maintained their robust performance.
Following this earnings release, we will rework our model. We expect a minor upward change to our target price and no change in our recommendation.
There was a strong operating performance from the main infra assets. Indeed, US managed lanes’ EBITDA grew strongly, namely by 45.4% for NTE and 23.7% for LBJ, while ETR 407 posted a 7.1% increase. Finally, Heathrow registered a 7% increase and 3.9% increase excluding IFRS 16.
Following this earnings release, we will keep our recommendation unchanged.
The key highlight of this publication is the €-345m provision in Construction for potential future losses in US projects where delays in design approvals imply prices cannot be signed off with subcontractors.
Following this press release, we will sharply reduce our profit forecasts due to the €-345m provision in construction, which will eat up most of the profit that had been expected in FY19.
Following the announcement that the Services division is to be divested, management explained that the strategy is to refocus on the infrastructure business and mainly in high complexity concessions.
We have to dig deeper into the numbers as the reclassification of the Services division as a held-for-sale divestment blurs the picture but, as a first assessment, we would say that we have to decrease our valuation moderately.
Management has decided to classify as “held for sale” all of its services activities. This decision is the result of the strategic move to focus on the development of its infrastructure business.
As management was not willing to share a range for divestment proceeds, we do not yet know whether the €3bn proceeds in our model is a good assessment or not. Hence we will not change our forecast and we will keep our positive recommendation.
Ferrovial announced in mid-October that it has hired an adviser to explore the potential sale of its Services unit in whole or in part or even not at all.
Ferrovial has hired an adviser to explore the potential sale of its services unit in whole or in part or even not at all, a move that we welcome, as profitability has narrowed, mostly in waste management, with the EBIT margin tumbling to 2%-3% in 2016-17 from 6%-7% between 2006 and 2012 for the whole Services division. We believe that the company could reallocate the proceeds to infrastructure in a value-creative way.
We expect to keep our recommendation unchanged.
Ferrovial is a very complex company. In H1 18, the financial performance was impacted by the €237m charge booked in Q1 18. But the developments in the toll roads and airports division are encouraging in terms of traffic. Overall, following this earnings release, we will revise our model. We don’t expect a change in recommendation as Ferrovial will clearly remain value-destructive in FY 18.
With a ROCE expected of below 6.5% against a WACC of 7.6%, Ferrovial is a value-destroying company. With the £-208m provision (€-237m) registered for the Birmingham contract (BHM) in Services, one can understand that risk management isn’t yet at the utmost best level.
As a consequence, we will reduce our target price. And this should trigger a change in recommendation from Add to Reduce.
Ferrovial released a mixed set of FY17 results, marked by a disappointing guidance in Services, low Construction margins but strong cash generation coming from the group’s infrastructure assets.
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