ABE.SM is one the biggest toll road company in the world, one of the most profitable. Not only they increase its cash dividend consistently, but also they distribute 5% in additional shares for a very interesting 10% dividend.
Abertis took control of main toll roads in strategic location: Madrid, Barcelona, Paris, Milan-Venice (in process), Rio de Jaineiro, Sao Paulo, Buenos Aires, Santiago de Chile and Puerto Rico. This has guaranted stable revenue generation and free cash flow for interesting acquisitions.
Besides the toll road business, it’s main shareholder in Cellnex (biggest European Telcom Tower Provider) and in Eutelsat (one of the biggest satelite company in Europe). Even if these businesses are smaller, they have been growing nicely: Cellnex in the last 6 months grew its revenue by more than 18% and its Free Cash Flow by 25% (on YoY basis).
The beauty of the toll road business is the length of its contracts ensuring a quite predictable business in the long-medium terms.
Why is Abertis an interesting Company?
The reason stays in this simple graph:
This is the plan for Shareholder Remuneration in the next 2 years:
- 10% dividend (5% in cash and 5% in shares, kind of DRIP model)
- and with 10% growth
And the company is more than able to pay this dividend, as its management is expecting to have a 13% Free Cash Flow Yield.
This is the dividend growth in the last 10 years:
On top, there is an efficiency program in place to reduce cost by 130m€. I consider this achievable thanks to the simple reduction in Interest Costs, due to its strong solidity Abertis has been able to sell 10 years debt at 1%!!!! projecting financial savings for at least 50m€ by the end 2017.
My Fab 4
- Free Cash Flow yield: is higher than 10%, currently is at 13% and growing
- Debt Level: is under control and reducing, with interest costs declining rapidly
- Management: it is one of the best in the sector, creating the biggest Toll road company in Europe and well diversified. I also like the transparency in reporting Free Cash Flow available for Shareholders discounting interests and taxes
- Margin of Safety: its current price is still below Analysts’ target price and none has “SELL” recommandation
Overall, it’s a fantastic company very well managed, undervalued and with a very shareholder friendly management.
Discolosure: I am long ABE.SM