Autostrada – another Italian job ?

As an investor in Italian companies, one should always be prepared for some surprises, as the EMAK example showed. In the case of Autostrada, it is the following news from the Week end:

Italian toll-road operator Atlantia SpA (ATL.MI) said it has gained complete control of Autostrade Sud America Srl, a subsidiary in South America, in the latest of a series of deals that will enable it to generate a third of its profit from activities overseas in the coming years.


Through its unit Autostrade per l’Italia SpA, it acquired a 45.8% stake from the Gavio family’s holding SIAS SpA for EUR565.2 million.
It gave SIAS a call option to buy 99.98% of Autostrada Torino-Savona SpA for EUR223 million.

Autostrade Del Sur was one of the Peter Cundil like “hidden” Assets of SIAS / Autostrada. Last year, they estimated it to be worth 640 mn EUR, now they sold it for ~15%. Less. Nevertheless, this represents almost 2 EUR cash in per share which in my opnion was not adequatly reflected in the valuation.

For some reason, they did not publish anything on their website, however there was a press release at SIAS, the operating subsidiary.

Interestingly, the full text reads as follows:

The sale price of the stake in Autostrade Sud America S.r.l. being sold under the above mentioned sale-purchase agreement has been agreed in the amount of Euro 565.197.750; the execution of the agreement will imply, for SIAS the discharge of about Euro 180 million of guarantees (value as at December 31st, 2011) issued in connection to the Chilean subsidiaries; consequently the benefit concerning the “consolidated financial net debt” of SIAS Group will amount to about Euro 750 million.

So I read this as a total consideration of 750 mn EUR, as consolidated debt is transfered to Atlantia as well, which is GREAT NEWS !!!!

If we compare this to the disclosure from the 2010 report of SIAS:

The “consolidated net profit” of the ASA Group for FY 2010 totalled EUR 38.2 million (with an increase of EUR 11.1 million compared to the corresponding “pro-forma” figure for 2009).

We can see that 100% of the South American business made 38 mn EUR profit, the 46% stake of Sias translates into ~18 mn “at equity” profit of this participation in SIAS books. The participation had a book value of 130 mn EUR in SIAS books as of December 2010, so the sale for 565 mn EUR translates into a gain of potentially 435 mio EUR for SIAS or around 2 EUR per share.

I am not sure what to make of the purchase option:

The potential exercise of the call option by SIAS (that has reserved for itself the right to appoint a subsidiary as the
purchaser of the above mentioned stake) can occur by September, 30th, 2012 for a price consideration equal to Euro
223 million. The execution is subject to, amongst other conditions, the issue of all the possibly necessary authorizations from the
competent authorities, ANAS and Antitrust authority included. ATS manages a motorway concession of about 130 km expiring in 2038. According to the reported figures as at December 31st, 2012, “net toll revenues” amount to Euro 68 million and “EBITDA” amounts to Euro 31 million; the “net
financial debt” amounts to Euro 36 million.

At about 8 times EV/EBITDA, it is not really cheap but operationally it might be a great fit for the existing toll road network. SIAS itself is valued at 7x EV/EBITDA, so its a small premium. From a technical point of view it might be intersiting tosee that for only 40% of the proceeds SIAS and Autostarda will show more profit in the P&L than the previous at equity participation.

Interestingly, the stock price of Autostrada didn’t move at all, wheras SIAS slightly increased.

Summary: This deal was one of the catalysts I have been waiting for. Although the stock price didn’t move at all I am quite excited how this worked out. I will increase the Autostrada position to a full portion (from 4% currently). I am struggling with myself if I shouldn’t add some SIAS shares as well. After this deal, Autostrada/SIAS is defintiely one of my top 3 conviction positions despite the lacklustre performance.

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