In the last three months, Abertis’ stock has underperformed by 9.5% in absolute terms and by 15.5% compared with the IBEX35 (which has historically been its best proxy).
In our opinion, the stock absorbed a number of negative factors, such as French regulatory uncertainties, CVC’s placement of a 7.5% stake (at €16.4/share, a c4.3% discount), Arteris stock price drop (of c30%) on the tougher local capex programme, and, lately, the strong stock sell off produced by the OHL Mexico scandal, which increased the market’s (we think ungrounded) fear of OHL being forced to sell part of its Abertis stake.
We believe the stock price now factors in the above elements of uncertainty with a progressive de-risking of the equity. In addition, Abertis’ 1Q15 economics have been supported by solid fundamentals: revenues were up by 6.2% on the traffic rebound Spain (+6.0%), France (+1.6%) and Chile (+6.5%), which offset a decrease in Brazil (-0.6%), and EBITDA reached €729mn (+6.4%), helped by consolidation of a previous efficiency plan.
As a result, our new SOTP is €16.90/share, including – inter alia - the reshaped Plan de Relance (+€0.40/share), Cellnex stake re-rating (+€0.20), and a lower Ke (7.66%, which adds only €0.10), while the DDM delivers a value €17.20/share.
We still believe that, in the medium term, the AP7 concession risk (€1.0bn receivables are at stake in a dispute with the Spanish government) and aggressive M&A, supported by a €7.8bn cash pile (mitigated by recent indications of a disciplined approach) could undermine Abertis’ equity value.
However, low sensitivity to bond rates (portfolio duration is only 11 years), an expected total return of above 10%, equity IRR of c8%, stronger traffic recovery than its peers, increased perception of possible value accretive M&A convert Abertis – at this entry point – into a Buy with a TP of €17.10, at least until there is more visibility on AP7 question.