Depressed by the lack of any major projects, Ferrovial’s share price has not performed as well that of other companies in the sector. What does Alphavalue expect from the firm’s three business divisions: namely construction, services and concessions?
The weakness in Ferrovial’s share price compared with that of its peers is largely down to the erosion in the construction division’s EBITDA margin. This has declined by 65% to 2.6% for Ferrovial Agroman, and it’s not expected to recover until the beginning of 2019.
The 12% like-for-like increase in revenues and the solid order book announced in October are not sufficient to offset the drop in the construction sector’s margins or the cancelation of services’ contracts like that of the Nauru Islands (which our analysts estimate €467 million).
Despite these short-term problems, the company remains attractive in the longer term. Concessions like its toll motorways in Canada and the US, as well as airports like Heathrow, generate strong Free Cash Flow (FCF). This has risen 25% in the first nine months of 2017.
Alphavalue’s analysts believe Ferrovial’s unusual structure (half of the assets are registered for accounting purposes as net worth, while revenues generated by their use are registered as dividends) means that the best method for valuing the company is via the FCF. Despite the fact this method implies an Equity/FCF ratio which is higher than the sector, the analysts believe the market is waiting for a recovery in margins. So we recommend caution for the time being.