Ferrovial SA (FRRVF, Financial) (FRRVY, Financial) is a Spanish construction company that also owns toll roads and 25% of London Heathrow Airport. The stock has done well since 2009 but is down this year.
The stock trades for 16.77 euros ($17.83), there are 726.1 million shares and the market cap is 12.2 billion euros. Earnings per share were 0.64 euros and the price-earnings ratio is 26.2. The trailing 12-month dividend yield is 4.25%.
Revenues were 7.45 billion euros in 2011, 9.7 billion euros in 2015 and 10.17 billion euros for the trailing 12-months. Twenty-eight percent of revenues come from Spain, 36% from the U.K., 16% from the U.S. and Canada, 13% from Poland and 7% from the rest of the world. Fifty percent are from services, 44% from construction, 5% from toll roads and 1% from airports.
The balance sheet shows 3.5 billion euros in cash and 3.2 billion euros in receivables. The liability side shows 3.7 billion euros in payables and 9.5 billion euros in debt. Investments in infrastructure have a book value of 8 billion euros. It is a safe bet that the infrastructure is worth a lot more than that. The debt is BBB rated.
Ferrovial’s two largest assets are its 25% stake in London Heathrow Airport and its 43.23% stake in several toll roads in Toronto. The company also has concessions to operate roads in the U.S., Ireland, Spain, Greece and Portugal and three smaller airports in Scotland. These concessions do come to an end but most are not for many decades. The company sold the Chicago Skyway and several Irish toll roads earlier this year.
Construction projects include: a portion of California’s high speed rail, Olstyn beltway in Poland, U.S.175 in Dallas and a road in Slovakia. The construction order book is 9.5 billion euros. In May, Ferrovial purchased Australian Broadspectrum for a total of 499 million euros. Broadspectrum operates refugee detainee centers off the coast of Australia—a very contentious subject. It looks like Ferrovial will get out of the detention center business.
At the Annual Sohn Investment Conference in London, Bo Bortemark of Carve Capital recommended shares. He points to the 21% gap the shares are trading to net asset value. He is also bullish on the stock because Heathrow airport is opening a new runway and the Toronto toll roads are starting a new phase of building. He sees upside of 30% to 50%. Shares were in the three euro range in 2009 and reached 22 euros last year.
The company is in talks to buyout a contract to build three power transmission lines in Brazil from rival Grupo Isolux Corsan. Several groups oppose Ferrovial’s contract to rebuild the Great Hall at Denver Airport. The groups point out how several divisions went bankrupt several years ago and a problem in building Heathrow Airport Terminal 5.
Ferrovial is not an easy company to look at because it is kind of a sum-of-the-parts story. People do not like privatized roads and airports, but the fact in many places is taxpayers do not want to pay up. Free cash flow was 950 million euros in 2015, 1.3 billion euros in 2014 and 1.2 billion euros in 2013. That is incredibly high. The stock is coming down so I would not buy it now, but would put it on my radar.
Disclosure: We do not own shares.
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