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Italian Toll Taker on Road to Recovery
04/24/2014 10:00 am EST
While economic challenges are still lurking in Europe, the region appears to be gaining traction, making Europe one of the most attractive investment destinations of 2014, suggests Benjamin Shepherd, editor of Global Investment Strategist.
Italy’s unemployment rate remains stubbornly high, but the country recently sold five-year bonds at their lowest ever yield of 1.88%.
More reforms will be required to keep the Italian economy on track; a liberalization of the labor market there would be particularly helpful. Nonetheless, the world clearly believes there’s little chance of a double-dip recession in the country.
These factors will continue driving revenue growth at Atlantia (ATASY), one of the largest global private toll road investors. While the company’s operations are global in scope, its primary revenue generator is its Italian toll road concessions, which span more than 3,000 kilometers.
Its largest Italian concession, on Autostrade per L’Italia, is responsible for more than 90% of the company’s Italian revenues and doesn’t expire until 2038.
The company also operates the country’s largest airport, Leonardo da Vinci-Fiumicino Airport, following its merger with Gemina last year, as well as Ciampino Airport, both in the area of Rome.
It is responsible for another 2,000 kilometers of roadways, primarily in Brazil, Chile, Poland, and, through a subsidiary, the US. It is also in the process of building a toll road in India under a 50-50 partnership with the Tata Group.
Overseas motorways experienced strong year-over-year revenue growth, up by 31.7% to EUR557.4 million, largely thanks to strong traffic on Brazilian and Chilean roadways.
While overall airport passenger traffic was down 1.3% year-over-year, total revenue was up 22.2% to EUR716 million due to increased aviation traffic.
Overall revenue for the company totaled EUR4.243 billion, a 5.2% year-over-year increase. Operating cash flow for the year grew by 10.3% to EUR1.663 billion, while operating profits were up 11.2% to EUR1.814 billion.
The company’s growth outlook for 2014 looks promising, despite the ongoing challenges in Italy. Traffic on Italian roadways posted positive growth in the first three months of this year and airport traffic is highly dependent on the overall state of the economy.
As the Italian economy stabilizes and returns to growth along with the rest of Europe, both business and tourist travel rates will pick up. Atlantia will also enjoy lower borrowing costs this year, thanks to a rating upgrade from Standard & Poor’s to BBB+ on Aeroporti di Roma’s credit.
With a strong growth outlook and an attractive yield of almost 3%, I’m adding Atlantia to our Long-Term Portfolio.
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