The easiest way to fly green? Take the train instead. Soon travellers in France will not have a choice. Domestic flights of two and a half hours or fewer will be outlawed under new emissions rules. But investors need not fear for Parisian airports owner ADP which has instead staked its future on international travel.
Its shares blipped on to traders’ radars on Tuesday when Schiphol Group, the Amsterdam airport owner, sold its 3.9% ADP stake one-tenth below market prices. Its shares plummeted more than 12 per cent.
ADP owns and operates the important Charles de Gaulle and Orly airports in Paris. Traffic in the first nine months of this year remained about 15 per cent below 2019 levels. Lockdowns in China explain why lucrative Asia-Pacific routes remain far more subdued.
As for the French domestic flight ban, that will be limited, says Henk Ombelet of consultancy Cirium. Only three routes will be affected in total, all from ADP’s Orly airport, which accounted for just 3 per cent of traffic in 2019.
ADP shares had been cruising. Over the past two years it had outpaced the MSCI all world transport infrastructure sector index. Before Tuesday’s drop its enterprise value to ebitda ratio traded at a 30 per cent premium to listed regional rivals. Its multiple has descended to a more palatable 12 times.
The Paris group’s lower reliance on European travellers explains the remaining premium. At Spanish rival Aena 90 per cent of passengers originate from the continent. That means more exposure to the local economic cycle and to stricter EU environmental rules for flights.
Meanwhile, ADP’s stakes in Turkish and Indian airport operators diversify its revenues further with some potential for growth; a third of profits will come from outside of Europe by 2025, thinks Jefferies, up from a quarter. ADP shrewdly managed to buy these stakes during a period of low interest rates.
On analyst estimates, ADP offers a free cash flow yield of 3 per cent annually on average out to 2025. That still beats that from French government debt. This air pocket drop offers an opportunity for those anticipating a recovery in global air travel next year.
