Ferrovial: Moat Supported by Exceptional Toll Road in Canada

Luis Garcia Alvarez of MAPFRE AM presented his in-depth investment thesis on Ferrovial (Spain: FER) at Wide-Moat Investing Summit 2018.

Thesis summary:

Ferrovial is a multinational infrastructure, services and construction group headquartered in Madrid, Spain. It owns significant stakes in Canada’s 407 ETR toll road (43% equity) and London Heathrow airport (25% equity), plus four “managed lane” projects in the United States (of which two are currently operational).

During recent quarters, adverse market conditions in the Services activities in the UK and a lower contribution from projects in Construction, together with a couple of loss-making projects, have compressed operating margins on the contracting side. However, Luis considers this a case in which investors are simply not focused on the right issues and misunderstand the relative weight of each division in the company’s valuation.

The most important asset in terms of equity value, the Canadian 407 ETR toll road (close to 50% of estimated intrinsic value for Ferrovial), has continued to report solid results. The exceptional terms of this concession are the source of the company’s competitive advantage in building and operating high complexity toll roads, which constitute an efficient solution for mobility problems in congested western urban cities.

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About the instructor:

Luis García Alvarez, CFA is an Equity Portfolio Manager at MAPFRE AM, the asset management unit of the global insurance company MAPFRE Group. He previously worked at Banco Santander as a Market Risk Analyst and at BBVA as a Senior Equity Research Analyst. Luis is also an Associate Professor for the MBA program at Ostelea Business School. He holds a Bachelor’s degree in Economics from the Francisco de Vitoria University, a Master’s degree in Economics and Finance from CEMFI and a Value Investing Diploma awarded by the Ben Graham Chair at Richard Ivey School of Business. Luis is a CFA Charterholder since 2013. Also on the academic side, he has co-authored a series of papers on the field of finance which he has presented at several workshops held at the University of Warsaw, University of Munich, Humboldt University of Berlin, the European Central Bank and the Spanish Finance Association (AEFIN).