value and opportunity

It was an interesiting week for SIAS SpA shareholders already. Today, SIAS published Q1 numbers.

Traffic decreased significantly, but was compensated more or less through tariff hikes.

The most interesting part of the press releae was however this one:

As already highlighted in Management Discussion & Analysis of the Financial Statements as of 31 December 2011, SIAS S.p.A. has signed an agreement on 24 February 2012 with Autostrade per l’Italia S.p.A. concerning the disposal of the entire stake held in Autostrade Sud America S.r.l. (representative of 45,765% of share capital) for an overall amount of EUR 565.2 million; on 8 March 2012 the first installment – equal to EUR 100 million – of the consideration has been collected. The predictable completion of the transaction in the above mentioned terms (expected by 30 June 2012) could result in the distribution of an extraordinary dividend, in one or more tranches, associated to the capital gain produced by the same disposal.

As I have written earlier, the capital gain has been around 380 mn EUR.

So this could mean a special dividend of up to EUR 1,50 per share. I consider this announcement as extremely positive, as the fear of Gavio using SIAS for further Impregilo purchases should be no longer valid.

Maybe this explains the crazy reversal int he stock price from yesterday’s lows:

Together with the normal dividend, at the current price of 4,80 EUR one gets back more than 40% of the shareprice in the next 12 months. That should be quite some support for the share price.

On this basis I will accumulate up to a full position beginning next week.

By the way, yesterday’s 1% purchase was executed at the VWAP of 4,39 EUR per share.

In my previous posts I have always concentrated on Autostarda as a way to invest at a discount into SIAS, the operating company whioch owns all the Italian concessions.

However, after the IGLI deal and the drop in Autostrada’s share price, SIAS itself became cheaper.

Based on year end numbers, SIAS is valued as follows:

P/E 8.2
P/B 0.9
EV/EBITDA 5.6
Dividend 9,1%

Market Cap: 1.2 bn
Debt : 1,9 bn
EV 3.1 bn

Relatively cheap, but as I mentioned before, SIAS basically had a “catalyst” event, the sale of its Chilean minority particpation. here is the section from the investor presentation:

• Sale agreement to transfer 45.8% stake in Chilean assets to Autostrade per l’Italia for €565mln cash consideration along with a discharge of debt guarantees of about €180mln. Sale price in line with the preliminary IPO evaluation of Sale of Chilean assets
• Unlock significant value from an investment asset, well above book value
• The transaction gives rise to a capital gain of €382mln (overall price of €565mln vs. a book value of €183mln)
• Sale will be finalized by 30 June 2012. €100mln advance cash payment have already been collected on 8 March 2012
• Cash proceeds from the sale of Chilean assets to be used for:
Potential use of proceeds
• Call option on 99.98% of Autostrada Torino – Savona” (valued at 223mln) expiring on September 2012
• Extraordinary dividend (increased pay-out for 5yrs)
• Additional resources for “green field” projects / other strategic uses
• Minorities acquisition of existing concessionaries

So what does that mean ? For sure we know now, that dividends will most likely increase, i.e. a dividend over 10% for the next 5 years is likely

From a valuation point of view, if we assume the purchase of the “Torino Savona” motorway goes through, we can assume the follwoing effects:

1. EV decreases by (745-223)= 522 mn EUR
2. EBITDA will increase by 32 mn EUR

So we will have an EV of ~2.6 bn and an EBITDA of around 588+32 = 620 mn. So EV/EBITDA will be reduced to 4.2 all other things equal because the minority share did not contribute to EBITDA.

If we look at other motorway operators, we see the following EV/EBITDAs:

Brisa 11.2
Abertis 10.1
Atlantia 7.6
Soc. Paris 8.7

So we can see that the cheapest comparable company in the universe is valued at least 50% higher than SIAS. Interestingly, the most expensive comapny, Brisa from Portugal actually received a takeover offer at the current 11x EV/EBITDA valuation.

A few more remarks:SIAS Bonds:

SIAS has a senior bond outstanding with maturity 2020 (XS0552569005). Interestingly this bond performed really strong after the announcement of the sale of the Chilean minority stake.

Corporate Governance:

This is something to explore further, but in my opinion SIAS as the holder of concessions is regulated to a certain extent. That is also the reason why the Gavio family seems to use Autostrada as vehicle for its transactions instead of SIAS.

Normally it would have been much easier to just use the sale proceeds at SIAS to purchase the IGLI stake but it seems that they cannot access it directly but have to upstream this via dividends.

So as a minority shareholder, interests are better aligned at the OpCo than at HoldCo (Autostarda).

Summary: SIAS really looks attractive right now, so I will start to establish a half position (2.5%) for the portfolio. 50% of this I will hedge with the FTSE MIB ETF short position