Macquarie: MAP - Funny Goings On In Rome! 1/03/2006
MAP owns a 33.6% stake in Rome’s Fiumicino and Ciampino Airports. These airports, as an asset, have disappointed investors since MAP acquired its stake three years ago. However in recent months their has been an increasing level of corporate activity in Italy which has generated speculation that MAP may look to book a profit by selling their Rome Airport stake. Shares in MAP have been on the rise as investors re-assess the value of MAP’s Rome Airport holding. Macquarie Research Equities (MRE) expects this process to continue, and currently hold a 12-month share price target of $3.66.
Value identified. There is some unusual trading activity currently occurring in Italy which demonstrates that other groups are identifying the potential value in Rome Airport that MAP saw three years ago. On Monday night, Gemina, an Italian aviation services company and the majority shareholder of Rome Airport, was up 11% while SAVE, an airport management company which owns Venice Airport, was up 7%. Speculation of corporate activity between the two parties continues, despite denial by Gemina that it is planning any bid for SAVE. The following examines Macquarie Research Equities (MRE) view of the impact of corporate activity on MAP’s valuation, and highlights that this increase in corporate activity at the very least sets an external valuation for Rome Airport well above MAp’s valuation, and potentially provides an attractive exit if/when it becomes available as well as providing a positive confidence boost for NAV and NPV.
Valuation implies 44% upside to Rome Airport: Gemina’s current share price implies a valuation of Rome Airport of €2,191m – this is a 44% premium to MAp’s December valuation. This equates to a 20¢ uplift to MAp’s NAV. While Rome Airport’s cash yield to date of 1.4% has disappointed, if MAp were to sell its share at the implied price, its return would increase to 37%. The corporate activity at the very least sets an external valuation for Rome Airport well above MAp’s valuation, and potentially provides an attractive exit if/when it becomes available.
One critical factor that cannot be over looked is the Rome Airport shareholder agreement with Gemina. It grants pre-emptive rights over Gemina’s stake in the event change in control leads to an airport operator / infrastructure company controlling Gemina. Thus SAVE will struggle to bid for Gemina without MAp’s consent.
Dividend review is positive: The changes in Gemina’s shareholding structure, with new members like Benetton, is increasing the pressure on Rome Airport to review its dividend policy. Any change towards distributing available cash is positive to MAp investors as it releases capital that can be applied to higher dividends, removing the DRP or providing cash to invest in new opportunities.
MRE have a 12-month price target of $3.66 on MAP, a 13.7% premium to the current share price, and view further share price catalysts to include further dividend upgrades, the sale of Rome Airport Handling, ongoing cost reduction and low cost traffic development in Europe.
At this stage it is hard to gauge where the SAVE / Gemina activity will go. At the very least it demonstrates another group is identifying the potential value in Rome Airport that MAp saw three years ago. This is positive for confidence in the NAV and NPV.
MRE’s preferred pick in the infrastructure sector remains MAp, not for corporate activity, but the fundamentals associated with profit growth at Brussels and Copenhagen, along with refinancing of Sydney and Brussels. MRE has an Outperform recommendation on MAP with a $3.66 target price.
Traders looking for maximum exposure to short-term movements in the MAP share price should consider the following equity warrants for a high-risk, high-return strategy.
Investors and traders looking for short to medium-term leveraged exposure to the MAP share price should consider Macquarie Instalments for a higher risk, higher return alternative to direct share investment.
Long term, more conservative investors looking for a simple, "set and forget" investment should consider the Self Funding Instalments over MAP. SFI's are moderately geared, have no annual resets and a maturity date in up to five years.
MAP Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
