Which stocks to buy and which not to buy in the infrastructure sector

Valuable shares in the infrastructure sector

In light of growing concerns about European stagflation, UBS experts carefully analyzed the sensitivity of motorway/airport traffic to high fuel prices and GDP growth, concluding that the impact would be moderate. They also focused on the correlation of income with the growth of inflation. In their opinion, in the short term, motorways benefit from greater pricing power than airports. In addition, rising government bond yields pose a risk to the sector in the long-term scenario, although UBS analysts note that the relationship between changes in bond yields and stock price dynamics is limited.

There are some stocks in the motorway sector that have attractive growth potential and strong inflation hedging, thanks to activated tariff formulas. As for the other variables in question, a 10% increase in fuel prices reduces traffic by 1%. GDP growth, on the other hand, is the most important driver with an elasticity of 1.7 times. Thus, the slowdown will have consequences, but in any case, 2022 is still about 3% above the level of 2019. Looking at the shares, UBS analysts prefer Eiffel (buy rating with a target price of 136 euros) and Vinci (buy rating with a target price of 115 euros). Instead, they downgraded the rating of Atlantia to neutral (the target price is 18.8 euros), and a similar decision applies to Ferrovial.

In the airport sector, driven by pent-up demand, the recovery of travel will be less dependent on the reduction of discretionary spending by European consumers than in other sectors. As for costs, inflationary pressures are intensifying, and rising energy prices will lead to increased costs in the short term. Therefore, it is better to invest in higher-quality companies, such as Flughafen Zurich (purchase rating with a target price of 198 Swiss francs) or with attractive multipliers, such as Aena (purchase rating with a target price of 164 euros), while UBS experts have lowered the target price of Fraport from 68 to 58 euros to reflect more inflationary pressure and a decrease in the valuation of international assets with access to Russia.

1) Eiffage. Compared to the current price of 93.92 euros, the shares, which capitalize 9 billion euros, have a target price of 136, with a buy rating. The growth potential is 44.8%, and the coupon yield is 4%.

2) Aena. Compared to the current price of 145.15 euros, the shares, which capitalize 21.8 billion euros, have a target price of 164 with a buy rating. The growth potential is 13%, and the coupon yield is 2%.

3) Flugafen Zurich. Compared to the current price of 167.10 Swiss francs, the shares, which have a capitalization of 5 billion euros, have a target price of 198 with a buy rating. The growth potential is 18.5%, and the coupon yield is 2%.

4) Fraport. Compared to the current price of 51.32 euros, the shares, which capitalize 4.7 billion euros, have a target price of 58, with a neutral rating. The growth potential is 13%. He does not distribute dividends.

5) Win. Compared to the current price of 93.50 euros, the shares, which capitalize 53 billion euros, have a target price of 115, with a buy rating. The growth potential is 23%, and the coupon yield is 4%.

6) Atlantia. Compared to the current price of 18.08 euros, the shares, which capitalize 14.9 billion euros, have a target price of 18.80 with a neutral rating. The growth potential is 4%, as is the coupon yield.

7) Ferrovial. Compared to the current price of 25.14 euros, the shares, which capitalize 18.4 billion euros, have a target price of 27.40 with a neutral rating. The growth potential is 9%, and the coupon yield is 3%. (Playback is reserved)


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