Getlink se: Why UBS thinks Getlink will regain market share over ferries

(BFM Bourse) – A Swiss bank bought the operator of the Channel Tunnel on Tuesday, saying the group should regain market share at the end of the year and benefit from a better price environment.

Infrastructure operators have suffered on the stock market in recent days. Since Emmanuel Macron announced the dissolution of the National Assembly, Vinci (-9.7% cumulative), Eiffage (-11.5%) and ADP (-12%) have floundered.

The first two suffered from the specter of renationalisation of highway concessions by the National Assembly, and the third was penalized by fears of greater regulatory uncertainty with the new executive and even less likely privatisation.

Getlink held up better. The operator of the Channel Tunnel limited its decline to 3 to 4%. However, UBS believes this decline, coupled with a more promising outlook, offers an entry point.

The Swiss bank raised its buy recommendation on the Yann Lerich-led group from “neutral” previously. It also raised its price target to €18.5, up from €17.7 previously, a target that gives the stock an 18% potential.

On the Paris bourse, Getlink shares are somewhat buoyed by the change of heart, gaining 1.7% in early afternoon, the SBF 120’s fourth-biggest gainer.

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Limited political risks

The Swiss bank acknowledges that parliamentary elections may present significant uncertainty about the event. However, the risks seem limited to him. According to his calculations, about two-thirds of Getlink’s cash generation is linked to the UK economy, compared with about a third in France. The international nature of the Channel Tunnel also makes the risk of nationalization unlikely.

“Higher French bond yields could represent a valuation headwind, but we note that most of Getlink’s debt is fixed and has a 17-year maturity, with the exception of an €850 million green bond due in 2025,” UBS points out.

Based on the well-known proposals of the National Assembly and the New People’s Front on salaries and pensions, the Swiss bank carried out a labor cost risk analysis for Getlink. In an extreme scenario, without the impact of wage increases on prices, UBS arrives at a negative impact of 4% on gross operating profit (Ebitda) 2026. However, the bank notably says that in such a scenario ferry operators, Getlink’s main competitors, would likely be even more penalized, and the group is known for effectively passing cost increases into the prices of its shuttles.

Ferries that will be less competitive

UBS does more than just put political risk in France into perspective. The business believes the Getlink shuttle service, which transports goods and cars, is close to an inflection point.

The business suffered from competition, particularly on price, from ferry companies, which led to Getlink losing market share, UBS explains. But according to advanced data compiled by the bank, the situation appears to be about to change. In May, ferry companies beat fare increases of between 2% and 10%, significantly more than Getlink (+2%).

The bank believes that the ferry companies made these price increases to pave the way for an increase in their costs due to the upcoming entry into force of France’s anti-social dumping law, in particular the enforcement of the French minimum wage for ship crews. all shipping companies. A similar law applies in the United Kingdom (Seafarer’s Wage Bill).

As a result, UBS expects ferry groups to raise their prices to pass on the cost increases in the coming months. It will thus lose competitiveness to Getlink, which is expected to start gaining market share in truck transport from the last quarter of 2024, and in 2025 will benefit from greater freedom to increase the prices of private vehicles.

“Furthermore, we believe that an eventual Labor government, if elected (in the UK, ed.), could lead to an improvement in trade relations between the UK and the European Union, which would be favorable to truck volumes that are on at 80% of pre-Brexit levels,” adds UBS.

In the medium term, the Swiss bank also sees opportunities for Getlink in rail transport. It said the number of passengers carried could increase from 10.7 million people in 2023 to 14 million people in 2028. Work to expand Amsterdam Central Station could eventually add 800,000 passengers to the London-Amsterdam route. New operators on certain routes (eg Paris-London) or new routes represent opportunities to increase traffic in the medium to long term.

Note that ahead of UBS, Barclays moved to the equivalent of a buy on Getlink in early June, making more or less the same arguments as the Swiss bank.

Julien Marion – ©2024 BFM Bourse

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