JPM European Infrastructure Report

www.jpmorganmarkets.com

Europe Equity Research10 July 2014

Equity Ratings and Price Targets

Mkt Cap Rating Price TargetCompany Ticker (€ mn) Price (€) Cur Prev Cur PrevAbertis ABE SM 13,935.68 16.28 UW N 16.00 n/cAtlantia ATL IM 16,330.02 19.77 OW n/c 24.00 n/cVinci DG FP 31,699.89 51.95 OW n/c 59.00 n/cEiffage FGR FP 4,229.44 48.53 N n/c 54.00 58.00Aeroports de Paris (ADP) ADP FP 9,540.37 96.41 N n/c 101.00 96.00Fraport FRA GR 4,601.37 49.90 UW n/c 47.00 53.00Vienna Airport FLU AV 1,456.35 69.35 N n/c 72.00 63.00Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change.All prices as of 09 Jul 14.

European InfrastructureLook beyond bonds: the real value is in the portfolios

European Construction, Building Materials & Infrastructure

Elodie Rall AC

(44-20) 7134-5911

[email protected]

Bloomberg JPMA RALL <GO>

Hannah Lee

(44-20) 7742-1945

[email protected]

Emily Biddulph

(44-20) 7134-5906

[email protected]

Rajesh Patki

(44-20) 7742-5874

[email protected]

J.P. Morgan Securities plc

For Specialist Sales advice, please contact:

Ian Mitchell

(44-20) 7134-1356

[email protected]

See page 59 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

The infrastructure sector, supported by falling bond yields and improving European economic data, has outperformed the broader market YTD, led by the toll roads (+12% above the MSCI Pan Europe). We acknowledge however, that the re-pricing of peripheral bond yields might be completed by now and downgrade Abertis to UW from N on this basis. However, we believe that companies such as Vinci, Eiffage and Atlantia offer potential for further value creation and return to shareholders through refinancing and portfolio optimization. We remain OW on Vinci and Atlantia, and N on Eiffage due to near term potential headwinds in French contracting.

Falling cost of debt and deleveraging a theme. We think toll roads will continue to refinance at cheaper rates and highlight Eiffage as having the greatest opportunity, their €2bn deleveraging plan alone is worth c. €22 per share. Increasing FCF provides dividend upside in a sector already yielding >3%.

Portfolio optimization a value creation opportunity. Longer term, we think portfolio optimization represents the biggest upside as we see opportunity for the concessionaires to open the capital of some of their assets, crystallizing value at higher multiples. In our opinion Vinci (with the toll roads) and Atlantia (with ADR) have the most room to maneuver.

France: c’est risqué but catalyst rich. The French capex stimulus plan and Ecotax are two catalysts that could help offset near term concern over French contracting for Vinci and Eiffage.

We downgrade Abertis to UW from N. The stock has been riding the peripheral trade supported by falling bond yields, but as this theme has largely played out we view the stock vulnerable with limited self help support when compared to peers.

Stay OW Vinci and Atlantia, N on Eiffage on near tern headwinds from French contracting, although we note that the stock offers attractive upside from refinancing. We make no change to our airports recommendations.

2


Elodie Rall(44-20) [email protected]

Table of ContentsExecutive Summary .................................................................3

Price targets and recommendations..........................................................................5

Where are we? ..........................................................................8

1. Bond yield compression has provided clear support to valuations .........................8

2. Share prices have in part been driven by traffic recovery......................................9

3. Robust momentum in the construction space......................................................12

Where to now?........................................................................13

Domestic recovery well flagged.............................................................................14

But bond yield proxies might come out of favor.....................................................16

However, there are a few catalysts still to come in the near term..........................................................................................17

We see scope for longer term value creation ......................20

Inflation assumptions are still low..........................................................................20

Cost of debt an opportunity for the sector...............................................................20

Portfolio management an opportunity for the sector – space for multiple expansion24

Vinci and Atlantia most likely to benefit ................................................................27

M&A: risk or opportunity? ....................................................................................28

Abertis .....................................................................................30

Small changes to estimates - no impact on EPS......................................................31

No change to €16 price target ................................................................................31

Bull case scenario gets you to €17 .........................................................................31

Atlantia ....................................................................................34

Bull Case Scenario gets you to €31........................................................................35

Vinci.........................................................................................38

Bull case scenario gets you to €82 .........................................................................39

Eiffage .....................................................................................42

Changes to estimates +2.3% on 2014 EPS .............................................................43

New PT of €54, lowered from €58 previously........................................................43

Bull case scenario gets you to €112 .......................................................................44

Aeroports de Paris (ADP) ......................................................47

Traffic growth above management guidance..........................................................48

Traffic and EPS upgrades ......................................................................................48

Price Target increased to €101, maintain Neutral ...................................................48

Fraport.....................................................................................51

We downgrade our PT to €47 ................................................................................52

Vienna Airport.........................................................................54

Changes to estimates, we upgrade EPS 4.6% .........................................................55

Upgrade price target to €72 ...................................................................................55

3



Executive Summary

The infrastructure has outperformed the sector YTD…

The infrastructure sector has outperformed the broader market year to date, with toll roads leading the charge (+12% above the MSCI Pan Euro Index). In our opinion the sector has benefited from three main tailwinds:

Bond yield compression which we view as particularly relevant for the peripheral names,

An improving economic outlook in Europe, manifesting as positive traffic surprises, as well as,

Strong activity in the construction space with positive repercussions for those companies with contracting businesses.

Recent performance has driven valuations back to, or slightly above historical averages on an EV/EBITDA basis.

…and we acknowledge that a number of positives may now be behind us

Often regarded as a bond proxy, the sector has been well supported by falling yields, but our strategists now think this trade has largely played out. We feel this change in momentum is of particular relevance in the periphery where Spanish and Italian yields made historical lows. Traffic has also now confirmed it is, in line with most economic indicators in Europe. While we forecast traffic to continue to recover across the sector, we think this is already partly priced in. Lastly, we expect French contracting activity momentum to slow down starting Q2.

However, we continue to see a number of attractive potential value drivers

We would highlight to investors that, in our view, the sector offers a number of attractive potential opportunities for increased returns and/or value creation.

Deleveraging and falling cost of debt is an opportunity for the sector

We see further opportunities for value return to shareholders in the sector from refinancing. This is particularly relevant for the toll roads which typically carry high levels of debt, much of which was contracted years ago at less favorable rates than are available today. For example, the average cost of debt at Atlantia is 5.2%, materially higher that the 2% coupon bonds the group issued recently. However, we highlight Eiffage as having the biggest opportunity in the sector as we see:

A cost of debt reduction opportunity via the on-going refinancing at its toll road asset APRR where we estimate the average cost of debt is around 5%, in comparison to recent 2.5% coupon bond issues

8% upside to our EPS estimates should the company be able to reduce the spread on its Eiffarie debt by at least 150bps before February 2015 as part of a refinancing exercise

Potential for the company to deleverage strongly over the next two years (up to €2bn which we calculate could be worth c. €22 a share)

4



Still an attractive dividend play

Dividends are an important part of the listed infrastructure investment thesis, and these stocks continue to present an attractive opportunity, in our view. The toll roads are currently yielding an average of 3.8% for 2014E and 4.3% for 2015E and we think there could be upside risk here for certain companies.

We forecast 30% DPS growth at Atlantia between 2014 and 2016, and see upside risks to our estimates from a decreasing cost of debt.

At Vinci, we expect a special dividend this year following the finalization of the sale of 75% of the car parks division, which could boost our DPS forecasts by c. 13%.

Beneficiary of a pick up in inflation

Infrastructure plays are effective inflation hedges given the CPI linked nature of revenues. True, deflation has been more of a concern in the prevailing environment of late; however we think there is now scope for this to reverse. In our opinion, inflation could become a key driver of tariff upside in the medium term.

We currently build our models on conservative long term inflation estimates, averaging 1.5% across our coverage universe (and assuming a modest 0.5% and 1% for 2014 and 2015).

A return to the 2% CPI level targeted by the ECB would add an average of 2.5%on average to sector valuations.

French catalysts could offset weaker activity momentum

While we caution on near term French contracting momentum, we think the French toll roads/contractors, Eiffage and Vinci (and to a lower extend Abertis), will benefit from the French capex stimulus package, which we expect to receive final approval from the European commission in the second half of this year.

This €3.6bn capex package, which is likely to materialize in the form of concession extensions could add between 3% and 6% to our price target valuations, and compensate for some of the anticipated weakness in French public works momentum.

In addition, should the ecotax be applied in France, even within a reduced scope, we believe this could boost heavy vehicle traffic on French motorways and provide further upside.

Portfolio management and room for multiple expansion

An examination of the asset ownership structure of the sector reveals that one source of upside for these companies could be value realization via minority (or even majority) stake sales. We think this could become a major theme for the big infrastructure names under our coverage in the medium to long term and lead to multiple expansion for the entire sector. In this report, we examine in detail the opportunities for each company, and see considerable value crystallization potential:

At Vinci we see 36% upside to our price target should the company manage to crystallize the value of the French toll roads on 11x EV/2014e EBITDA

If Atlantia, should they achieve a 15x EV/2014e EBITDA multiple on the ADR airports division we see 14% upside to our price target

5



Price targets and recommendations

Abertis – Downgrading to Underweight from Neutral - €16 PT

Our PT is unchanged and now suggests c.2% downside potential. The shares have benefited from the absolute fall in bond yields but we think this support will fade from now on. While we believe Spanish traffic will continue to recover, we believe this is already largely priced in. Moreover we continue to see a cap on valuation from a potential strong Spanish recovery due to the Spanish Government's guarantees on traffic (AP7 and C32). Cost of debt might fall further in Spain and France, but we believe Abertis will benefit less than its peers from this as the group is committed to increase capex in Latin American assets where cost of debt is higher.

We also view future portfolio management as more limited for Abertis than its peers, given the group has already realized attractive value creation over the past years from asset divestments (airports notably), ahead of the curve. Lastly, we view M&A as an opportunity as well as a risk for the group which has c. €8bn of financial firepower to re-invest. Current low financing conditions could facilitate an interesting transaction but we have little visibility at this stage, although we appreciate this is a route the company is actively pursuing.

ADP – Neutral - €101 PT

We upgrade our 2014 traffic forecast following strong traffic performance YTD, which has seen the number of passengers handled by ADP in Paris rise 3.8% from January to May. We are now expecting 2.5% growth for 2014, vs. our previous estimates and management guidance for 2% and are confident ADP can continue to add value through its retail division despite the FX movements which have proved a headwind recently. The company has maintained its target to reach €19 airside spend per passenger by 2015 (up from €17.7 in 2013), we think this is achievable and forecast 4% growth in retail activities this year and 6.6% next year. We applaud ADP's strategy of concentrating on core assets (such as the development of Coeur d’Orly) and targeting specific overseas opportunities (it is currently bidding for LaGuardia with TAV) given current airport transaction multiples. We increase our DCF derived 12 month price target to €101 but maintain our Neutral rating as we feel on 11x EV/EBITDA the shares are fairly priced here.

Atlantia – Overweight - €24 PT

We remain Overweight with a PT of €24 (+18% upside). While bond yields are unlikely to remain a major support to valuation from here, we continue to see scope for traffic to recover further, while falling cost of debt remains an opportunity to boost EPS growth further (we see 4% upside to our 2015 EPS). We also view Atlantia as an attractive dividend play, yielding 4.1-4.7% in 2014-15E, with upside risks to our 30% DPS growth forecast between 2014 and 2016. Longer term we see value creation potential through the sale of a stake in ADR (up to €3.2 per share).

Eiffage – Neutral - €54 PT

We remain Neutral but downgrade our PT to €54 (from €58) as we adopt a more cautious stance on French contracting momentum. We downgrade our contracting margin assumptions for the group by 10bps in 2014 & 2015, but we continue to see 43% EPS growth between 2014 and 2016 from margin restructuring, strong traffic, and falling cost of debt. We highlight in this note that we see high potential for value creation at Eiffage from cost of debt reduction and deleveraging possibly by

6



February 2015, which could add 8% to our 2015E EPS. In addition, if the company reaches its €2bn deleveraging target by 2016, we see €22 (+44%) per share value creation potential. Eiffage would also be a direct beneficiary of the French capex stimulus capex, and the ecotax (even if applied in a reduced scope).

Fraport – Underweight - €47 PT

In the January to May period, traffic at Frankfurt airport grew 2.2%, towards the bottom end of company guidance for 2 to 3% passenger growth and in contrast to the airport’s peers where we have seen traffic largely exceed expectations. We make no changes to our 2.6% traffic forecast at this stage however as we wait to see how the summer schedule develops but note given the recent Lufthansa profit warning risk is likely skewed to the downside. On a positive note, the FCF profile at Fraport is now improving and we forecast the company to generate €116m of FCF this year and €230m next, representing a yield of 2.5% and 5.0% respectively. This will allow Fraport to just about cover dividend payments this year, but leaves little room for major returns to shareholders in our opinion, as we note the company are likely to start spending on the much needed Terminal 3, for which construction spending could commence as early as 2016. In addition to this, we identify retail as a key differentiator for airports and find more compelling opportunities in this regard. We maintain our Underweight rating and downgrade our price target to €47 (suggests 6% downside) from €53 on lower long term traffic expectations.

Vienna Airport – Neutral - €72 PT

FCF has been sequentially improving at Vienna Airport and the company continues to delever, with management now expecting to achieve their previous 2016 target to reach 2.5x net debt/EBITDA this year. We expect the airport to end the year with net debt of €515m, or 2.0x net debt/EBITDA. We continue to like the FCF profile of the company and identify the potential for higher dividends that this facilitates. Management made no change to their 2014 guidance at the Q1 results, but we would be looking for upgrades at H1 given the strong traffic performance YTD. Passenger traffic was up 2.8% as of the end of May, towards the top end of management guidance for 1-3% growth on 2013 and we increase our 2014 traffic forecast to 3.5% from 2.5% previously. We increase our 12 month DCF derived price target to €72, providing 3% upside to the current share price, justifying our Neutral rating on the stock.

Vinci – Overweight - €59 PT

We remain Overweight with a PT of €59. Although cautioning for weaker French contacting momentum starting Q2 and lower support on valuation from bond yields, we like the company's growing international exposure through its contracting divisions (half of the activity is now outside of France) and airport expansion. We also think traffic momentum will remain strong, while the ecotax, even if implemented in a reduced scope, could boost momentum further. The French capex stimulus, if approved, could increase valuation by c.4%. We also believe the company will announce a special dividend at the H1 results, which could add up to 13% to our 2014 DPS forecast (and boost yield to 4.2%). Longer term, we see Vinci as having the most potential for value creation through portfolio management, which could add up to 36% to valuation.

7



Table 1: Sector valuation table

Price Local Market Cap P/E P/B EV/Sales EV/EBITDA EV/EBIT Dividend yield FCF yield Price performance

(LC) Currency (LC) 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 1m 3m 6m

ADP 96.3 EUR 9.504 25.4 21.2 2.4 2.2 4.3 4.1 11 10.1 17.9 14.6 2.40% 2.80% 4% 5% -1% 6% 16%Fraport 50.4 EUR 4.615 19.1 16.3 1.4 1.4 3 2.9 9.5 8.9 16.7 14.1 2.60% 2.70% 3% 5% -10% -6% -9%Vienna Airport 69.5 EUR 1.454 16.9 14.7 1.5 1.4 3 2.7 7.7 6.9 16.6 13.3 2.30% 2.90% 10% 10% 0% -4% 12%

Airports 20.5 17.4 1.8 1.7 3.4 3.2 9.4 8.7 17.1 14 2.40% 2.80% 6% 7% -4% -1% 6%

Abertis 16.5 EUR 14.683 20.5 18.5 2.2 2.1 6.7 6.3 10.6 9.7 16.1 16 4.40% 4.90% 6% 9% -3% 3% 3%Atlantia 20.2 EUR 16.375 20.5 18.9 2.1 2.1 5.5 5.2 9 8.7 13.3 12.6 4.10% 4.70% 7% 4% -6% 4% 18%Eiffage 48.3 EUR 4.523 13.3 11.1 1.5 1.4 1.2 1.2 7.8 7.3 14.1 11.8 3.00% 3.60% 10% 12% -11% -9% 20%Vinci 51.7 EUR 31.679 13.5 12.9 2 1.9 1.1 1.1 7.6 7.1 12.6 10.7 3.70% 3.90% 12% 12% -8% -5% 8%

Concessions/Construction 16.9 15.4 2 1.9 3.6 3.5 8.7 8.2 14.1 12.8 3.80% 4.30% 9% 9% -7% -2% 12%

Sector Average 18.7 16.4 1.9 1.8 3.5 3.3 9.1 8.4 15.6 13.4 3.10% 3.50% 7% 8% -5% -2% 9%

Source: Bloomberg, Company reports and J.P. Morgan estimates.

PT Upside JPM Revenue growth EBITDA growth EPS growth ROE ROCE ROICNet

Debt/EquityNet

Debt/EBITDAEBITDA/Interest

(JPM) % rating 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015

ADP 101 5% neutral 3% 4% 4% 7% 23% 20% 9% 11% 5% 6% 6% 7% 1 0.8 2.5 2.2 10.4 12.8Fraport 47 -6% underweight -2% 4% -10% 5% 10% 17% 8% 8% 4% 4% 5% 4% 1.1 1 3.6 3.3 6.3 6.7Vienna Airport 72 4% neutral 3% 2% 6% 4% 19% 15% 9% 10% 6% 7% 6% 7% 0.8 0.6 2 1.5 12.4 16.1

Airports 1% 3% 0% 5% 17% 17% 9% 10% 5% 6% 6% 6% 0.9 0.8 2.7 2.3 9.7 11.9

Abertis 16 -2% underweight 7% 6% 8% 8% 11% 11% 11% 12% 6% 6% 6% 6% 2.6 2.4 4.3 4 4.3 4.7Atlantia 24 19% overweight 5% 4% 5% 3% 23% 8% 10% 11% 4% 4% 5% 5% 1.9 1.7 3.2 3.1 4.5 4.5Eiffage 54 12% neutral 1% 1% 2% 4% 22% 20% 11% 11% 5% 5% 5% 5% 0.9 0.8 5.8 5.3 3.3 3.6Vinci 59 14% overweight -1% 1% 7% 3% 9% 4% 14% 13% 6% 7% 6% 7% 0.3 0.3 2.3 2 9.1 9.6

Concessions/Construction 3% 3% 6% 5% 16% 11% 11% 12% 5% 6% 5% 6% 1.4 1.3 3.9 3.6 5.3 5.6

Sector Average 2% 3% 3% 5% 17% 14% 10% 11% 5% 6% 6% 6% 1.2 1.1 3.3 3 7.5 8.7

Source: Bloomberg (09/07/2014), Company reports and J.P. Morgan estimates.

8



Where are we?

YTD the infrastructure sector has outperformed the European market

The infrastructure sector has outperformed year to date with all the toll road, airport and construction stocks under our coverage beating the MSCI Pan Europe Index, with the exception of our sole Underweight, Fraport (see Figure 1 and Figure 2).

Figure 1: Toll road and construction stocks have all outperformed the European market YTDPerformance rebased

Source: Bloomberg.

Figure 2: Airport performance has been more mixed with Fraport underperforming the marketPerformance rebased

Source: Bloomberg.

This performance has left investors asking if we are there yet in terms of share price appreciation. To answer this question, we first review what we consider to be the main drivers of the outperformance, namely:

1. Bond yield compression which we view as particularly relevant for the peripheral names

2. An improving economic outlook, manifesting as positive traffic surprises

3. Strong activity in the construction space with positive repercussions for those companies with contracting businesses

We review each of these factors in turn below.

1. Bond yield compression has provided clear support to valuations

The long dated and levered nature of concession assets mean infrastructure stocks have this year benefited from falling bond yields. Indeed toll road stocks are often perceived as bond proxies by investors. This is best demonstrated by Atlantia and Abertis which have both showed a strong negative correlation to falling peripheral spreads (see Figure 3 and Figure 4).

95

100

105

110

115

120

125

130

135

Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14

Eiffage Atlantia Vinci Abertis MSCI Pan Euro Indes

95

100

105

110

115

120

125

130

135

Jan-2014 Feb-2014 Mar-2014 Apr-2014 May-2014 Jun-2014 Jul-2014

ADP Vienna Airport MSCI Pan Euro Index Fraport

Falling peripheral spreads have

been a major share price driver

for Atlantia and Abertis

9



Figure 3: Bond yield compression a major driver of share prices

Source: Bloomberg.

Figure 4: As they have been in Spain

Source: Bloomberg.

2. Share prices have in part been driven by traffic recovery

Performance has in part been driven by a recovery in traffic, particularly on the toll roads. The recovery was first seen in France where traffic growth turned positive in Q2 last year on all networks.

Figure 5: Total traffic growth turned positive (yoy) on all networks including Vinci's in France in Q2 2013

Source: Company data

Figure 6: Traffic on the Eiffage APRR network grew 0.5% (yoy) in Q2 2013

Source: Company data.

This year traffic growth in France has been strongest on Abertis’s Sanef network (up 3.7% in Q1 or 4.1% for the first four months of the year – see Figure 7). Traffic grew 2.1% on Vinci toll roads during the same period, while at Eiffage Q1 traffic volumes increased a more modest 0.7%.

60708090

100110120130140150

Italian 10yr Atlantia

40

60

80

100

120

140

Spanish 10yr Abertis

-15%

-10%

-5%

0%

5%

10%

Vinci LV Vinci HGV Total traffic

-20%

-15%

-10%

-5%

0%

5%

10%

15%

APRR LV APRR HGV Total traffic

French toll roads led the traffic

recovery with a return to growth in Q1 2013

10



Figure 7: Traffic on Abertis’s French Sanef network was up 3.7% (yoy) in Q1 2014

Source: Company reports.

The recovery of traffic volume in Italy has been more tentative, but Q1 this year marked a return to growth on Italian toll roads (see Figure 8). More importantly,traffic in Italy has followed a clear upward trajectory over the last year which we think has been an important driver of the share price.

Figure 8: Italian toll road traffic has been moving towards a recovery over the past year (yoy)


Looking forward, we think there are still encouraging signs which would lead us to expect continued traffic improvement in Italy. Toll road traffic indicators for example, are in positive territory as demonstrated in Figure 1 and Figure 2 which show the recent trends in new car registrations and gasoline sales respectively.

-15%

-10%

-5%

0%

5%

10%

-14%-12%-10%-8%-6%-4%-2%0%2%4%6%

Light vehicle Heavy vehicle Total traffic growth

Italian traffic has showed clear

signs of a recovery over the past several quarters and returned to

growth in Q1 this year

Indicators are supportive for a

continued recovery

11



Figure 9: Italian new car registrations were up 3.8% (yoy) in June%

Source: ANFIA

Figure 10: Italian sales and consumption of gasoline positive trend1,000 metric tonnes

Source: Italy Ministry of Economic Development

By comparison, in part we expect the relative underperformance of Abertis versus its peers discussed above can be explained by the more sluggish traffic volumes on Spanish toll roads (see Figure 11). Q1 traffic was down 2.7% in Spain, as we note that the company seemed to be particularly hard hit by the calendar effect of a later Easter holiday this year. However, the four month trend (also reported with Q1 results) was much stronger at +2.7%.

Figure 11: Abertis Spanish quarterly traffic trends (yoy)


Toll road traffic, by default is more local in nature when compared to airport passenger traffic. This, in our opinion, goes some way towards an explanation of the difference between the share price performance of the airport and toll road concessionaires. Exposure to international passengers helped dilute the effect of sluggish domestic travel in many cases and helped sustain an earlier return to growth at the airports.

-40

-30

-20

-10

0

10

20

30

40

Jul-0

8

Nov

-08

Mar

-09

Jul-0

9

Nov

-09

Mar

-10

Jul-1

0

Nov

-10

Mar

-11

Jul-1

1

Nov

-11

Mar

-12

Jul-1

2

Nov

-12

Mar

-13

Jul-1

3

Nov

-13

Mar

-14

500

600

700

800

900

1,000

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

Oct

-13

Jan-

14

Apr

-14

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Traffic has been slower to

recover in Spain

The more robust nature of air traffic means recovery has been

less of a theme at the airports

12



Figure 12: Monthly traffic at ADP has trended towards recovery this year, up 3.8% (yoy) January-May


Figure 13: Traffic at Vienna Airport has started to recover over the last 12 months (yoy)


That said, the airports under our coverage have all guided to traffic growth within the range of 2 to 3%. Year to date this guidance appears conservative. January to May traffic is up +3.8% (vs. management guidance for 2%) at ADP (see Figure 12), while the number of passengers handled at Vienna Airport is up 2.9% in the first six months of the year (see Figure 13), near the top end of management guidance for 2 to 3% growth. Meanwhile at Fraport, traffic is up 2.4% (see Figure 14) compared to the period January to June in 2013 as the airport suffered from various strikes.

Figure 14: Traffic at Frankfurt airport is up 2.2% (yoy) January - June


3. Robust momentum in the construction space

For Vinci and Eiffage, which both have exposure to the construction space, strong Q1 revenues have helped support share prices. Both companies benefited from milder winter weather at the beginning of the year which had a particularly positive impact on the road construction businesses that suffered from reduced activity related to poor weather last year. At Vinci, revenues in the Eurovia division were up 13.2% on a LFL basis in Q1, while at Eiffage revenues in the public works division grew 7.5%.

In addition, contracting backlogs have also been encouraging, despite the companies’ exposure to France (especially Eiffage which generates c. 90% of revenues from France). For Vinci, order intakes were up c. 16% in Q4 13, while slightly down by 2% in Q1 14. Eiffage's order intakes were up 9% in Q4 13 and another 6% in Q1 14. Both companies’ order books represent nearly one year of contracting activity, providing ample visibility.

-25%-20%-15%-10%

-5%0%5%

10%15%20%

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

-20%-15%-10%-5%0%5%

10%15%20%

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

-15%

-10%

-5%

0%

5%

10%

15%

Although so far this year air

passenger traffic is largely

exceeding expectations

Mild winter weather proved

favorable for revenue progression in Q1 and

contracting backlogs have been

encouraging

13



Lastly, contracting margins are also expected to recover from their lows in 2012/2013. Eiffage had already showed improving trends over the past 2 years, having troughed in 2011. The company has delivered on its self restructuring measures, improving margins to 3.2% in 2013 from 2.3% in 2011 and we expect them to continue to increase these further over the next years to 3.5% this year, and 3.8% in 2015 (although we have revised our assumptions slightly down in this note, as detailed in the company section). We expect contracting margins at Vinci to improve to 4.3% this year, vs. 4.1% last year, as the company is able to unwind provisions (in Poland for instance) and given the deconsolidation of CFE which was margin dilutive, in our view.

Where to now?

Valuations are not stretched

The recent sector performance raises the question of where share prices can go next. We review current valuations (on an EV/EBITDA basis) of the sector and find that relative to history the toll roads are trading in line with long term averages (see Figure 15), while the airports are slightly above (see Figure 16).

Figure 15: Infrastructure stocks are trading broadly in line with long term historical averages

Source: Bloomberg

Note that historical average multiples at Eiffage include an M&A premium in 2006 and that historical multiples at Abertis value the company when it was inclusive of Airports (which typically trade on higher multiples).

5x

6x

7x

8x

9x

10x

Vinci EV/EBITDA

Historical Average

7x

8x

9x

10x

11x

12x

13x

Eiffage EV/EBITDA

Historical Average

8x

9x

10x

11x

12x

Abertis EV/EBITDA

Historical Average

6x

7x

8x

9x

10x

11x

12x

Atlantia EV/EBITDA

Historical Average

Lastly, contracting margins are also expected to recover from

their lows

14



Figure 16: Fraport and ADP are trading just above their historical long term averages

Source: Bloomberg.

Figure 17: Apart from Vienna Airport which is in line

Source: Bloomberg.

Domestic recovery well flagged

We expect traffic to continue to recover

Following Q1 performance, Vinci increased their traffic guidance for the year. The company is now expecting c. 2% traffic growth on its French motorways. We assume that all toll roads under our coverage operating assets in France (i.e. Vinci, Eiffage and Abertis) will perform in line with this guidance and we believe our expectations are on par with consensus. Despite the strong traffic performance in France, we still think the recovery has greater potential in the periphery as we note that peripheral vs. core composite PMI’s remain high (see Figure 18).

Figure 18: Periphery vs core composite PMIs

Source: J. P. Morgan, Markit

6x

8x

10x

12x

14x

16x

ADP EV/EBITDA

Historical Average

5x

6x

7x

8x

9x

10x

11x

12x

Fraport EV/EBITDA

Historical Average

5x

6x

7x

8x

9x

10x

11x

12x

2006 2007 2008 2009 2010 2011 2012 2013

Vienna Airport EV/EBITDA Historicall Average

-10

-8

-6

-4

-2

0

2

4

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Periphery PMI spread to Core

We forecast 2% traffic growth

this year on all French toll roads

15



In Italy, we assume traffic could recover 2% this year as well, although we note here that we are above Atlantia and SIAS’ management guidance (of around 1 to1.5%). We understand traffic YTD is trending 1.5%, meaning the recovery trend is confirmed following a modest +0.7% start in the first couple of months this year. We feel that there is scope for outperformance here, given traffic is still c. 10% below normalized levels, while consumer confidence and PMIs remain strong in Italy.

In Spain, we expect traffic to show the strongest recovery among the European countries with listed toll roads, at 3% this year and 4% next year. Spanish toll road traffic grew a total of 2.43% in the period January to May according to monthly data published by the Ministry of Economic Development, confirming the trend seen at the publication of Q1 results. We note here that Abertis' traffic guarantee from the government unfortunately somewhat caps the potential upside to valuation from a recovery in Spanish traffic.

Latin American toll road traffic should continue to perform at the c. 5% growth level.

As discussed earlier, the airports under our coverage have all guided for traffic growth within the range of 1 to 3%. Given the current trends, we see scope at both Vienna Airport (+2.9% Jan-Jun) and ADP (+3.8% Jan-May) to surpass management estimates. As such we increase our 2014 passenger traffic estimates to 3.5% at Vienna Airport (above top end of 1 to 3% guidance) and to 2.5% for ADP, above guidance for 2%, but remaining cautious in light of the recent Air France – KLM (~50% of traffic in Paris) profit warning which cited over-capacity as an issue. Traffic at Fraport has also shown improvement on 2013, and is up 2.4% Jan-Jun. Growth at Frankfurt has been stunted by strikes at Lufthansa and we are cautious on the outlook given the airline’s recent profit warning and therefore leave our 2014 forecast for 2.6% growth unchanged.

But contracting activity might slow down in France

We believe the strong level of activity seen in Q1 in French contracting is likely to fade into Q2. This is partly due to a weather impact (Q1 benefitted from mild weather this year, but the comps for Q2 are harder vs. last year), but can also be attributed to there being more holidays in Q2 this year versus 2013. However, we also expect French order intakes to slow down post the municipal elections that were held in May. In addition, we are mindful that the likely reduction in scope of the Ecotax means the government will have less revenue to spend on infrastructure, and note that French local authorities budgets are being reduced c. €10bn by 2017 (cuts of €1.5bn in 2014, €3bn in 2015 and €3bn in each of 2016 and 2017). Weaker recent PMI numbers in France support this view (see Figure 19).

We forecast Italian traffic to grow 2% this year as well

Spanish traffic should show the strongest recovery, we forecast

3% growth this year

Recent trends suggest air

passenger traffic is likely to surpass management guidance

at ADP and FLU

French activity is likely to fade

into Q2

16



Figure 19: Eurozone composite PMI breakdown

Source: J. P. Morgan, Markit

But bond yield proxies might come out of favor

We do not expect bond yields to be as strong a support to valuations from here

Our strategists believe that the big outperformance of bond proxies in H1 should fade from here, as bond yields, which have being falling this year, reaching historical lows, are unlikely to move down further. Our fixed-income strategists expect peripheral spreads to continue tightening during the course of the year, but believe a lot has already happened.

Figure 20: Spanish and Italian spread to bunds

Source: Datastream, J. P. Morgan, dotted lines show J. P. Morgan forecasts

Figure 21: Peripheral equities vs spreads

Source: Datastream

To demonstrate how raising bond yields may impact each toll road stock, we run a sensitivity analysis based on a scenario which sees bond yields rise 30bps (see Figure 22).

40

42

44

46

48

50

52

54

56

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14

Periphery Composite PMI Germany France Eurozone

0

1

2

3

4

5

6

07 08 09 10 11 12 13 14 15

Spanish 10y spread to bund Italian 10y spread to bund

1.2

1.7

2.2

2.7

3.2

88

93

98

103

108

May 13 Aug 13 Nov 13 Feb 14 May 14

Periphery vs Core Spanish spreads to Bunds (rhs)

17



Figure 22: Atlantia most sensitive (in PT terms) to rising bond yields (assumed 30bps rise)

Source: J.P. Morgan estimates.

However, there are a few catalysts still to come in the near term

Capex Stimulus Package

It is our understanding that regulatory approvals for the French capex stimulus plan are now in their final stages with the European Commission. We have been flagging that the French government and toll road concession holders have been in negotiations on a capex stimulus investment for several months now and although final approval from the European Commission looks to have been delayed by the recent European elections, we expect the plan to be announced before the end of the year.

We expect the capex stimulus package to be worth €3.6bn in total, and for it to see the toll road operators swap additional infrastructure investment for concession life extensions. Currently we do not include any such package into our assumptions, but present a scenario analysis below of the impact we expect it to have on the three stocks affected. Without the details of the plan and what extensions may be granted to each concession, it is difficult to quantify the price impact on each stock. However we calculate a 3 year extension should add between 3 and 6% to our NPV estimates, but highlight that these calculations do not include potential compensation for the increase in the “redevance domaniale” last year, which we expect to be included in the negotiated package.

Figure 23: We see the biggest upside from the capex stimulus package at Eiffage


-3.0%

-4.7% -4.5%

-2.1%

-5%

-4%

-3%

-2%

-1%

0%

Abertis Atlantia Eiffage Vinci

3.10%

6.09%

4.10%

0%

1%

2%

3%

4%

5%

6%

7%

Abertis Eiffage Vinci

We expect the French capex stimulus package, worth €3.6bn

in total, to come in H2

18



We note in addition to the concession extensions, contractors Vinci and Eiffage may also benefit from completing some of the road works to be carried out under the agreement in house. It is our understanding that under the current plan, contractors are able to carry out up to 45% of the works in house which would have a positive impact on order books and may serve to offset some the current weakness in French public works momentum.

Ecotax to Truck Toll: Same but different

The ecotax in France (a tax on HGV using toll free national roads) has been plagued by a series of delays in a protracted drama led most recently by new Minister of Ecology, Ségolène Royal, and brought to public attention by violent protests in Brittany last year. In the latest installment, we now understand that the tax is unlikely to go ahead in its current form (Les Echos). Instead, we would expect an announcement by Minister Royal by the end of the summer for a new “truck tax”. In our opinion this is likely to take the form of a less ambitious version of the original, taxing just 4,000km of the planned 15,000km of roads.

If the tax goes ahead, we expect positive knock-on implications for the French toll roads which should benefit from increased volumes as traffic is diverted from previously free national roads onto more direct fee paying routes. The exact impact this will have on the toll roads is difficult to predict, however clearly it will depend on the final size of the scheme. We believe a 1% increase in French heavy good vehicle toll road traffic would have, on average, a 0.7% impact on our EPS estimates for Vinci, Eiffage and Abertis.

Although Atlantia does not operate any roads in France, the company is still exposed to the ecotax through its Ecomouv contract to build and operate the electronic tagging method through which the tax was intended to be implemented. So far,Atlantia have spent c. €630m on Ecomouv, and while the system has now been acknowledged by the government as in complete working order, if the ecotax does not go ahead this puts the promised 11.5 year revenue stream at risk.

However, it is our understanding however that the Ecomouv contract involved a guaranteed revenue stream and therefore even in the event of cancellation Atlantia is entitled to compensation from the government. Our note (Ecotax likely to be reworked but compensation is on the table) details recent reporting on the issue, but it appears Atlantia could be eligible for a €850m payout from the government in the form of compensation and penalties should the tax be cancelled. We view this as incrementally positive given that this figure surpasses Atlantia’s investments to date.

We see near term dividend upside

Dividends are an important part of the investment thesis of these stocks given the nature of cash flows in the infrastructure sector. Within our universe we think the tolls roads are more interesting from this perspective, yielding an average 3.8% for 2014E and 4.3% in 2015E, higher that the airports which yield 2.4% and 2.8%respectively. Looking through the dividend lens, we think Atlantia and Vinci offer the greatest opportunities for dividend upside in the sector.

Ecotax unlikely to go ahead in

its original form, instead we expect the instigation of a new

“truck tax”

If the ecotax is cancelled Atlantia should be eligible for

compensation from the French

government

https://jpmm.com/research/content/GPS-1425191-0


19



We highlight later in this note where we see upside to our Atlantia EPS estimatesfrom decreasing cost of debt (in addition to recovering traffic levels) and note here that investors can expect to see any increase in earnings to filter through to higher dividends (the company’s guidance is for a payout between 80 and 90%). Our current estimates suggest EPS (& DPS) growth of 30% between 2014 and 2016. We see upside risks on these from decreasing cost of debt.

At Vinci we expect a special dividend this year following the finalization of the sale of 75% of the car parks division, Vinci Park, in June. The divestment was based on an EV value of €1.96bn, which when compared to the €1.2bn book value (according to our estimates) of the business should generate an after tax gain of c. €300 on our calculations. Vinci employs a 50% payout ratio dividend policy and therefore we see potential for returns to shareholders to be €25cents higher than our forecast 2014 €1.92 per share (13% upside). Obviously, the company might equally choose to distribute a special dividend which could amount €50cents per share.

Within the airports sector, we think Vienna Airport offers the most interesting dividend opportunity. At present we are forecasting a 2014 dividend of €1.60 (+2.3%) and a 2015 payment of €2.00 (+2.9%), inline with the company’s 40% payout ratio policy. However, given the positive FCF profile of the company we think there is upside risk here. We forecast adjusted FCF of €146m this year and €149m next year, representing a yield of 9.9% and 10.2%. As the group is already ahead of its debt reduction target (to reach <2.5x net debt/EBITDA by 2016) (see Figure 24), and is unlikely to commence any major investment spending until at least 2016, we think management are likely to consider returning capital to shareholders.

Figure 24: Vienna Airport is FCF positive and ahead of its debt reduction targets

€ in millions

Source: J. P. Morgan estimates.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

(400)

(200)

0

200

400

600

800

1,000

2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

Capex Free Cash flow Net Debt Net Debt / EBITDA

We see dividend upside at Atlantia from earnings growth

and the potential for a special at

Vinci

Within the airports sector we think Vienna Airport offers the

most interesting dividend

opportunity

20



We see scope for longer term value creation

Taking a step back, we continue to see long term value in the infrastructure sector. We examine some of the opportunities we identify for long term value creation below.

Inflation assumptions are still low

Infrastructure plays serve as inflation hedge given the CPI linked nature of revenues. Deflation has been more of a concern in the prevailing environment of late, however we think there is now scope for this to reverse. In our opinion, inflation could become a key driver of tariff upside in the medium term. We currently build our models on conservative long-term inflation estimates, averaging 1.5% across our coverage universe (and assuming a modest 0.5% and 1% for 2014 and 2015).

In order to demonstrate the sensitivity of each company to changes in inflation, we present the valuation impact of a 50bps increase to our long term assumption in Figure 25.

Figure 25: Valuation impact of a 50bps increase in our long term inflation assumption: Atlantia most sensitive


Cost of debt an opportunity for the sector

Infrastructure companies typically carry higher levels of debt given their visibility over future earnings (see Figure 26). A large part of the debt owed by our infrastructure coverage was contracted under fixed rate policies years ago, when interest rate levels were higher. Therefore as we have discussed in previous research, despite market concerns surrounding rising bond yields, we think there is a cost of debt opportunity in the sector. However, we think this is most likely to apply to the toll roads under our coverage as although we acknowledge that FCF has been improving at some of the airports we cover, we remain mindful of looming capex programmes which will spark new rounds of borrowing.

1.3%

3.0%

2.5% 2.6%

0%

1%

2%

3%

4%


Inflation could become a driver:

we are currently basing forecasts on a conservative long

term rate

High debt levels means there is

a cost of debt opportunity in the

sector while re-fi rates are low

21



Figure 26: Eiffage most highly levered in terms of 2014e net debt/EBITDA


In order to simplistically assess the cost of debt opportunity for the toll roads, we conduct a sensitivity analysis to a scenario assuming a flat 30bps reduction in our cost of European debt. We run the discount through our WACC calculations and present the results in Figure 27. This methodology shows that Atlantia is the most sensitive to a change in our cost of debt assumptions.

Figure 27: Atlantia the most sensitive to a 30bps reduction in our WACC cost of debt assumption


Looking beyond a purely academic exercise however, we think there are real opportunities for cost of debt reductions to pass through the P&L. This is because most of the companies under our coverage have debt maturities coming to an end, or have the ability to refinance themselves at currently lower levels than their average cost of debt. In our opinion, the most interesting stocks to play this theme are Eiffage and Atlantia.

Deleveraging and debt refinancing continues to be a theme at Eiffage

Eiffage ended 2013 with net debt of €12.6bn (€13.4bn including swaps of €860m), an unexpected increase of €110m on 2012 when we had anticipated the company to deleverage. However, despite the delay, management has reiterated their guidance to reduce net debt by €2bn over five years to 2016 and we think this is still possible(however, not in a scenario including increased leverage to fund capex related to the French stimulus plan). We expect the company to end 2014 with net debt of €12bn (€12.9bn including the value of the swaps of €860m reported in 2013) as we account for the sale of the Hospital Sud Francilien PPP which should contribute €400m towards the deleveraging effort. The PPP disposal is part of our base case assumption for net debt in 2014.

4.3

3.2

5.8

2.3 2.5

3.3

2.0

0x

1x

2x

3x

4x

5x

6x

Abertis Atlantia Eiffage Vinci ADP Fraport Vienna Airport

1.1%

1.5%

1.1%

0.5%

0%

1%

2%


We see an opportunity for

Eiffage to refinance Eiffarie’s debt before Feb 2015 and boost

EPS by 8%

22



Based on discussions with the company we believe Eiffage is working on increasing its distributable reserves in order to be able to refinance and decrease the level of debt at Eiffarie. In our view, this could be done through the reevaluation of the value of APPR’s fully owned subsidiary AREA. We believe this could help the group achieving its deleveraging target. In addition, we believe the company will look to refinance it Eiffarie debt (€2.3bn) before February 2015 when there a step up in the cost of the debt is due to take place increasing the spread to 360bps from 300bps currently. We think the company could refinance this debt at much better levels currently (potentially 200bps). We think achieving this could boost our 2015 EPS forecasts by 8%.

Figure 28: APRR/EIFFARIE debt levels (2013)

Source: 2013 company presentation.

In addition we also think APRR refinancing continues to be a theme. The company has demonstrated its ability to raise money at record low rates recently as it benefits from a credit rating upgrade to BBB by S&P at the end of last year. For example, APRR raised €500m of six year money in January at a coupon on 2.25%, and raised the same amount again in April with five year bonds offering a variable 75bp coupon. We see scope for the group to continue to be able to decrease the average cost of debt of APRR (of c. 5%) given the upcoming maturities (see figure below),providing credit conditions remain favorable. The same logic applies to Vinci and Abertis' French toll road concessions.

Figure 29: APRR debt maturities


24%

7%

69%

APRR/Eiffarie totaldebt of €9,790m

Eiffarie Macquarie quasi equity APRR

365 424 434 391

714

4 4 5 5

211

500

1000500

50052

500

300

200

50075

75 1000

200

400

600

800

1000

1200

1400

2014 2015 2016 2017 2018 2019 2020 2021 2022

CNA EMTN Bank Credit

We see scope for the group to continue to be able to decrease

the average cost of debt of

APRR

Table 2: APRR bond schedule

Size Coupon Maturity

€700m 7.5% 2015

€500m 4.375% 2016

€300m FRN 2016

€1,000m 5.0% 2017

€500m 5.125% 2018

€500m 4.875% 2019

€500m FRN 2019

€500m 2.25% 2020

Source: Company Reports

23



Atlantia’s cost of debt also expected to decrease further

We see scope for Atlantia to also continue reducing its cost of debt despite rising bond yields. At present, we estimate a 5.2% average cost of Italian debt, materially higher than the 2% €750m seven year money the company raised in November. We highlight that the company had €2.2bn of debt bearing a 5% coupon maturing last June, which, according to our estimates, could make a €66m finance cost saving in 2015 which would add 4% to our 2015 EPS estimates.

Table 3: Atlantia's debt split (year end 2013)

Reported Net Debt (€m)

Italian motorways 9,917

Italian airport business 759

Overseas business

Chile 113

Brazil 105

France -148

Poland -11

USA 35

TOTAL 10,769


Figure 30: Atlantia geographical debt split (2013)


Abertis’s cost of debt reduction is also ongoing but not a clear path

Abertis recently refinanced €700m of debt, buying back c. €500m of a 2016 4.625% coupon issue and c. €200m of a 5.125% coupon bearing 2017 bond. The new debt was issued with a 2.5% coupon, representing, in our opinion, the appetite and opportunity for infrastructure companies to refinance at more favorable rates. The interest cost saving however is offset in 2014, 2015 and 2016 by refinancing related costs. As such, we actually account for a €10m negative impact on financial chargesfrom the transaction in these years. We see scope for decreasing cost of debt at Sanef, as for other French toll roads, but note that group is committed to increase capex at its Latin American assets, where cost of debt is higher, while also targeting further acquisition opportunities.

Figure 31: Geographical distribution of Abertis's debt: opportunity for cost reduction is reduced by lower exposure to Europe


92%

7%1%

Italian motorways Italian airport

Overseas business

37%

43%

4%11%

5%

Spain France Chile Brazil Rest of World

24



Portfolio management an opportunity for the sector – spacefor multiple expansion

Current valuations suggest that we could see additional upside from multiple expansion as sum of the part valuations imply discounts to comparable listed assets. The toll roads in particular are trading in line with their historical averages which, in our opinion, leaves room for a re rating given that we are going through a period where traffic is surprising to the upside. We think higher multiples could be achieved through the crystallization of value in the infrastructure space via asset stake sales, which could help reduce conglomerate discounts further.

An examination of the asset ownership structure of the sector reveals that one source of upside for these companies could be value realization via minority (or even majority) stake sales. We think this could become a major theme for the big infrastructure names under our coverage in the medium to long term. In fact, we have already seen evidence of companies thinking in this way, as demonstrated at Vinci via the recent sale of their car parking division.

To try and identify where these opportunities lie within our universe we screen our coverage for the following factors which we think are favorable prerequisites for a stake sale to take place:

Majority or full ownership of the asset

Non recourse debt involved

The presence of natural buyers

In our view, value creation is most likely when these factors combine. Table 4 details the list of assets that meet the ownership criteria and where we think the companies under our coverage may look to crystallize value. We then discuss each of these opportunities in turn.

Table 4: Asset divestment eligibility varies between companies under our coverage

Company Asset % Ownership

Abertis

Sanef (French motorways) 52.55%Spanish motorways 100%

Arteris (Brazilian motorways)51% of Participes em Brasil which in turn

owns 69.3% of ArterisChilean motorways 50-100%Metropistas (Puerto Rico motorways) 51%

Atlantia

ADR (Rome airports) 95.9%Autostrade per I’Italia (Italian motorways) 100%Bertin Concessoes (Brazil motorways) 50% + 1 shareGroupo Constanera (Chilean motorways) 50.01%Stalexport (Polish motorways) 61.20%

Eiffage APRR (French motorways) 50% + 1 share

Vinci

Cofiroute (French motorways) 100%ASF (French motorways) 100%Arcour (French motorways) 100%ANA (Portuguese airports) 100%

FraportLima airport 70%Twin Star (Burgas and Varna airports) 60%Antalya airport 50%


Stake sales could crystallize

value and help reduce

conglomerate discounts

25



Abertis

Abertis has a history of stake sales where in the past management have been effective at rotating the portfolio, but we feel this theme has now largely played out for the company. They have for example, already sold all of their airport investments. Of Abertis’s majority held assets, the Chilean motorways and Sanef present the only opportunities for potential portfolio optimization in our opinion as the Spanish concessions are nearing expiry, Arteris is listed (and therefore already ascribed a value by the market) and seeing as the company just increased their stake in Metropistas, we would not expect a sale any time soon.

We expect that, at some point, Abertis will start discussions with the Spanish authorities regarding the renewal of the Spanish concessions, the main ones of which are due to expire by c.2021. We think the market needs to have further clarity on that front in order to feel comfortable with investment thesis of Abertis. We believe future negotiations regarding concession expiry might involve 'swapping' the Spanish government’s guarantees (AP7, C32), which valuations currently represent 10% of the group's enterprise value (according to our estimates). Any divergence on valuation of these guarantees (which are due to be paid to Abertis at expiry of the concessions) would generate upside or downside risks to valuation. We believe there is a risk there that the Spanish Government does not underpin these levels of valuations.

Aside from the toll road assets the company does have majority investments in the Telecoms division. We do not expect these to be a focus of divestment, however as Abertis has made clear that these assets are now core to the company’s strategy, and indeed it has recently just acquired TowersCo, an Italian towers company, which we feel confirms this stance. For these reasons we do not think Abertis will be a major participant in the value realization opportunity we see in the sector at the moment. In fact, we suggest that the opposite is true as we think the company will instead be looking to exercise its considerable firepower to actively acquire assets.

Eiffage

We do not recognize Eiffage as having a large opportunity with regards to asset rotation. The company’s principal concession asset, APRR, is wholly owned by Eiffarie which is in turn owned 50% + 1 share by Eiffage and 50% - 1 share by Macquarie Atlas Roads (MQA), a listed entity. We think there is more opportunity for the market to realize value when privately held assets are involved, as we note that the listed nature of Eiffage’s motorway partner already allows for greater asset value transparency.

We note however that MQA's valuation would suggest a 9.7x 2014E EV/EBITDAfor APRR/Eiffarie, while Eiffage's current share is most implying a large discount to this. If we value APRR/Eiffarie at 9.7x, the implied valuation for the contracting divisions would be only 5x 2014 EV/EBIT. Therefore it is our view that, as for Vinci, the market is applying a conglomerate discount to Eiffage's sum of the parts. However, we do not believe Eiffage has the flexibility, in contrast to Vinci, to crystallize value at this stage as its JV agreement with MQA likely leaves it little room to maneuver. But if Vinci was able to highlight valuation at its toll road divisions, the read across to Eiffage would be positive.

Asset rotation theme already

played out at Abertis, we see

limited opportunity for value crystallization

We see a risk regarding the

valuation of the Spanish

guarantees

We think the company will

instead be looking to exercise its considerable firepower to

actively acquire assets

Eiffage uninteresting from a

stake sale potential perspective

26



To frame the conglomerate discount argument in a different way, we argue that should you ascribe the APRR/Eiffarie value provided by the MQA read across to our sum of the parts, it implies the contracting businesses is being valued at a discount to listed peers by the market (see Table 5). On an EV/EBIT basis, European contracting stocks are trading on an average of 11.6x 2014 estimates. This compares to the conservative average 7.2x we apply to Eiffage Contracting in our valuation table.

Table 5: European construction peers trade at a premium to the implied valuation in our SOTP calculations

EV / EBIT

Market Cap (€m) 2014E 2015E

France Bouygues SA 9,696 12.4x 11.5x

Sweden Skanska 6,843 10.5x 10.0x

Italy Impregilo 1,740 5.8x 4.5xAustria Strabag 2,600 9.1x 7.5x

Acciona 3,588 19.4x 17.4xACS 9,925 8.4x 7.9x

Spain FCC 2,036 14.5x 13.3xSacyr Vallehermoso 2,140 25.5x 24.3xOHL 3,044 8.6x 7.9x

Germany Hochtief 4,238 6.3x 5.5xBilfinger Berger 3,068 7.1x 6.1x

Average 11.6x 10.5x

Source: Bloomberg estimates. Based on share prices at cob on (08/07/2014)

We run a quick valuation scenario where we remove the perceived discounts placed on Eiffage’s divisions. If we put APRR on 11x EV/2014e EBITDA and place the contracting divisions on EV/2014e EBIT multiples close to those that some of its European construction peers are trading on, we get to a blue sky price target of €85.

Table 6: Eiffage blue sky SOTP valuation assuming multiple re-rating

Business Stake Enterprise value Multiple

Value €m 2014ContractingEiffage Construction 100% 1610 10Public works 100% 1040 10Energy 100% 1380 12Metal 100% 360 10Contracting enterprise value 100% 4,390ConcessionEiffarie/APRR 50% 8,360 11Other concessions (incl Millau & A65) 2,622Concessions enterprise value 10,982Total 15,372Net debt 2014E -12,892Plus Macquarie share in net debt 5,025Plus minorities debt Millau & A65 526Less pension liabilities -200Eiffage SOTP equity value 7,831Per share 85


Fraport

Of the airports under our coverage, in our view Fraport has the highest potential for value crystallization. However, we note that the majority stakes it owns are small contributors to the group and therefore we do not expect these could be major value drivers beyond providing M&A transaction multiple reference points which would be relevant to the entire airport sector.

Asset sales are an unlikely value driver for Fraport

27



Vinci and Atlantia most likely to benefit

Vinci

Thus far, Vinci has seemingly operated a strategy of sole ownership over the majority of its assets. This has "locked up” value in the company which has had a conglomerate style discount applied to it by the market in our opinion. The recent toll road transaction, in which Vinci bought out the minority stake in Cofiroute last December (see our note: Vinci buys Cofiroute minority stake) goes some way to providing a valuation floor. However, executed at an implied multiple of 8.4-8.5x EV/EBITDA, the deal was done at a discount to listed toll roads (on c. 9x).

If Vinci were instead to open the capital of some of those toll road assets, by for example selling a stake to an infrastructure fund or similar player, we feel they would be able to achieve a price pegged on much higher multiples enabling a re-rating. The company has, in our opinion, already made the first steps towards taking such an approach to the portfolio with the sale of the car parks division.

As we did with Eiffage above, we run a valuation scenario where we place the contracting businesses on comparable multiples to listed peers and put the toll road assets on 11x EV/2014e EBITDA (see Table 7). In this case, we get to a blue sky scenario valuation of €77.

Table 7: Vinci blue sky SOTP valuation assuming multiple re-rating

Business Stake Multiple (EV/EBIT) FY 2014 EV

ContractingEnergy & Info 100% 12 6,132Roads 100% 10 2,820Construction 100% 10 6,770Contracting enterprise value 100% 10 15,722Real estate & other 0ConcessionsCofiroute (incl. A86) 100% 11 10,175ASF 100% 11 26,477Arcour 100% DCF 952Car Parks 100% Transaction Value 1,960ANA DCF 3,359ADP 8.00% Market value 769Other concessions Book value 1,441Concessions enterprise value 45,133Total enterprise value 60,855Net debt -13,481Less pension liabilities non covered Book value -900Vinci SOTP equity value 46,474Equity value per share 77

Source: J.P. Morgan estimates. NOTE: This valuation table reflects 100% of the car parks division, but at the Transaction Value of the

recent stake sale (value neutral in this scenario as the associated debt is included here as well). We have left in the 100% stake to be

consistent with our published valuation table which we will update for the transaction when more accounting details are given at the H1

results.

Atlantia

The opportunity for asset value realization at Atlantia lies in the airports division. Now that a deal between Alitalia and Etihad is close to completion, we believe Atlantia might at some point wish to consider opening ADR's capital to foreign investors (which could either be an infrastructure, pension or sovereign wealth fund, in our opinion, as we have seen these players as active buyers in recent transactions).In our view, management is probably more likely to consider selling a minority stake, in which case valuation might be less attractive than if selling a majority stake,

If Vinci were to open the capital of some of their toll roads we

feel they would be able to

achieve a price pegged on much higher multiples than those

implied by today’s share price

We think the big opportunity at

Atlantia is the sale of a stake in

ADR


28



but we note Atlantia have made no comments as to the intention of an asset sale at this stage.

We highlight that the merger between Atlantia and ADR last year implied a 2014 EV/EBITDA for ADR of c. 7x, while recent M&A in the airport sector (as per Table 8) indicate valuations of more than twice this level, at c. 15x. We ran a scenario valuing ADR at 15x 2014 EV/EBITDA. This could add €3.20 per share to Atlantia.

Table 8: Recent airport transaction multiples would be supportive of Atlantia opening the capital of ADR

Date Airport Buyer SellerTransaction

priceStake

Implied EV/EBITDA

pax/yr

Apr-14 John Lennon Airport - Liverpool - UK Peel Group Vantage Airport Group 65% 4m

Apr-14 Cusco Airport (Machu Picchu)- Peru

Kuntur Wasi Consortium (Andino Investment

Holding and Corporacion America)

Peruvian Government US$264.7m 53% 8m

Nov-13 Confins - Belo Horizonte - Brazil Zurich Airport consortium Government R 1.82bn 35.7 11mNov-13 Galeao - Rio - Brazil Changi consortium Government R 19bn

Oct-13 Heathrow - London - UKUniversities

Superannuation SchemeFerrovial £392m 8.65%

Sep-13 ANA (Portuguese airports) Vinci Portuguese Government €3.2bn 100% 15 30m

Aug-13 Luton - London - UKAXA and AENA

consortiumAbertis €502m 90% 11 12m

Jul-13Belfast International, Stockholm Skavsta and Orlando Sanford

ADC and HAS Abertis €284m

Jul-13 ADP Vinci French Government €365m 4.70% 10

Jun-13Regional and City Airport (Exeter, Blackpool and Derry Airports)

Rigby Group Balfour Beatty

May-13Hochtief Airports (Athens, Budapest, Dusseldorf, Hamburg, Sydney and Tirana)

Public Sector Pension Board of Canada

Hochtief €1.5bn Various95m

(combined)Mar-13 Cardiff Welsh Government Abertis £52m 100% >16 1mFeb-13 Grupo Aeroportuario de Pacifico in Mexico (codad) FCP Abertis €48m 100%

Jan-13 Stanstead - London - UKManchester Airports

Group (MAG)Heathrow Airport Holdings (formerly BAA) (Ferrovial)

£1.5bn 100% 15.6 18m

Dec-12 Heathrow - London - UK Qatar and CIC Ferrovial £478m 10.62%Oct-12 Newcastle Airport AMP investors (Australia) Copenhagen Airports £150m 49% 15 4mAug-12 Humberside Airport - UK Eastern Group MAG £2.3m 82.70%

May-12 TAV Airports ADPTepe Construction, Akfen

Holding, TAVUS$874m 38% 10 72m

Apr-12 Edinburgh - Scotland - UKGlobal Infrastructure

PartnersBAA (Ferrovial) £807m 100% 16 9m

Feb-12 Luis Munoz Marin - Puerto Rico Highstar Capital and SAB $2.6bn 9mFeb-12 Guarulos - Sao Paulo - Brazil Invepar Government R 16.2bn 51% >30x

Feb-12 Viracopos - Campinas - Brazil Triunfo consortium Government R 3.8bn 51% >30xFeb-12 Brasilia - Brazil Engevix consortium Government R 4.5bn 51% >30xOct-10 Naples Airport - Italy F2i BAA (Ferrovial) €150m 65% 13May-10 Rome Airports (Gemina) - Italy Changi Airport S$100m 5% 12 39m

Oct-09 Gatwick - London - UKGlobal Infrastructure

PartnersBAA (Ferrovial) £1.51bn 100% 9 32m

Sector Average 14.75


M&A: risk or opportunity?

Faced with a falling cost of debt and potential stake sales, companies under our coverage could be left with ample financial firepower to re-invest in higher growth assets such as airports where we note recent M&A activity has been high. Accordingly bidding processes have been competitive, driving up multiples (as per Table 8).

29



At such valuations we raise the question whether this is a risk or an opportunity. For instance Vinci paid 15x EBITDA to acquire ANA, but as we highlighted in past notes (see our note: ANA acquisition accretive), we actually found the deal to be attractive given the tenor of the concession, the guaranteed exit IRR imbedded within the transaction and the upside potential to the group from the construction of a new Lisbon airport.

Looking forward, we present on Table 9 where we think the next opportunities could be over the next 12 months, as sourced from recent press articles and explicitly statedcompany intentions. We note that Fraport has been unsuccessful so far in their acquisition strategy, which could lead them to be more aggressive in future biddings and therefore this is where we see the most risk.

Table 9: Potential upcoming airport transactions and publicly stated bidders

Airport Potential Bidders Seller Potential Investment Airport Size Source

Jože Pučnik Airport, Ljuljana, Slovenia Vinci Government 1.3m pax Company commentsAENA Airports, Spain IPO Government 46 airports in Spain, ~200m pax FT (13.06.2014)

LaGuardia Airport, New York, USA ADP/TAV Government US$2.5bn 17.5m pax by 2030 Company commentsRegional Airports (group A & B), Greece Fraport Government €220m Various GTP (17.06.2014)

Arturo Merino Benitex Airport, Santiago, Chile Government US$700m29m pax by 2030 and 50m pax by

2045BN Americas (20.06.2014)

Source: J.P. Morgan.


30



Abertis

Downgrading to Underweight from Neutral

Downgrading to Underweight, no change to PT. We downgrade Abertis to Underweight from Neutral as we now see 2% downside to our unchanged €16 price target. We acknowledge that the stock is still likely to benefit from a continued absolute fall in bond yields, but think this theme has largely been played out.

Traffic is recovering strongly but momentum priced in. Traffic in Spain is likely to show the sharpest recovery amongst the European toll roads as we forecast 3% growth for 2014, and as a reminder, Spanish traffic remains 40% below peak levels. However, we feel the market is now pricing this in and note that Abertis’ traffic guarantee from the government unfortunately somewhat caps the potential upside to valuation from a recovery.

Abertis will benefit from a falling cost of European debt, but not a major driver of value. Like its European infrastructure peers, Abertis has proven its ability to refinance at attractive rates (most recently issuing €700m of bond at 2.5% coupon) and we think this will continue to be a theme. However, in our opinion this is unlikely to be a major driver of value going forward as the company plans to spend capex and therefore issue associated debt in the higher interest rate environment of Latin America.

Portfolio management options limited. Of all the companies under our infrastructure coverage, Abertis has been the most forward thinking in terms of optimizing the portfolio of assets for value creation. However, we feel that as its peers catch up in the stake sale game, Abertis by comparison will lack this positive share price catalyst.

Lack of M&A visibility could pose a threat. Abertis highlighted at its investor day last year that it has €8bn of firepower to deploy into growth strategies. We think the low rate financing available to the company right now could offer up some interesting opportunities that likely pose the biggest threat to our Underweight recommendation.

Underweight

Company DataPrice (€) 16.28Date Of Price 09 Jul 14Price Target (€) 16.00Price Target End Date 7-Jul-1552-week Range (€) 17.28-11.71Market Cap (€ mn) 13,935.68Shares O/S (mn) 856

Abertis Infraestructuras SA (ABE.MC;ABE SM)

FYE Dec 2013A 2014E(Prev)

2014E(Curr)

2015E(Prev)

2015E(Curr)

2016E(Prev)

2016E(Curr)

Adj. EPS FY (€) 0.73 0.82 0.80 0.91 0.89 1.04 1.02EPS FY (€) 0.72 0.82 0.80 0.91 0.89 1.04 1.02Revenue FY (€ mn) 4,653 4,967 4,987 5,240 5,275 5,474 5,527EBITDA FY (€ mn) 2,923 3,133 3,169 3,367 3,419 3,551 3,624EBIT FY (€ mn) 1,721 1,874 1,909 2,032 2,084 2,162 2,235EV/EBITDA (x) FY 2.1 1.6 1.8 1.6 1.7 1.6 1.7P/E (x) FY 22.5 20.0 20.3 17.9 18.2 15.7 15.9Net Debt/EBITDA FY 4.5 4.4 4.3 4.1 4.0 3.7 3.6Div Yield FY 4.1% 4.6% 4.5% 5.1% 5.0% 5.8% 5.7%Source: Company data, Bloomberg, J.P. Morgan estimates.

▼ UnderweightPrevious: Neutral

ABE.MC,ABE SM

Price: €16.28

Price Target: €16.00

Spain


Elodie Rall AC

(44-20) 7134-5911

[email protected]



YTD 1m 3m 12mAbs 1.1% -2.9% -2.0% 15.5%

12

13

14

15

16

17

18

€

Jul-13 Oct-13 Jan-14 Apr-14 Jul-14

Price Performance

31



Small changes to estimates - no impact on EPS

We make the following changes to our model to account for recent corporate activity at Abertis:

1. Abertis recently refinanced €700m of debt, buying back c. €500m of a 2016 4.625% coupon issue and c. €200m of a 5.125% coupon bearing 2017 bond. The new debt was issued with a 2.5% coupon, representing, in our opinion, the appetite and opportunity for infrastructure companies to refinance at more favorable rates. The interest cost saving however is offset in 2014, 2015 and 2016 by refinancing related costs. As such we actually account for a €10m negative impact on financial charges from the transaction in these years.

2. We account for the €94.6m acquisition of TowersCo into the Telecom business, forecasting a €14m contribution to group EBITDA in 2014.

3. In relation to the acquisition of a 42.3% stake of Invin, which controls 50% of both Autopista Central and Rutas del Pacifico, we account for a €291m cash outflow in 2019. The acquisition does not change the consolidation method for these companies.

4. Abertis sold its remaining 5.01% stake in Eutelsat in June. Although no book gain resulted from the transaction, we account for the €275m transaction proceeds in our cash flow model.

5. In line with the company’s 5% scrip dividend policy we amend the number of shares outstanding in our model to 898m, as communicated in the company’s most recent release on the subject.

No change to €16 price target

We maintain our SOTP derived 12-month price target at €16 (see our note: Post Q1 review), suggesting 2% downside to the current share price.

Bull case scenario gets you to €17

We run a bull case scenario for Abertis where we assume:

Long term inflation increases 50bps (from our conservative 1.5% assumptions)

That cost of European debt for the company falls 30bps, the fall is reflected here via the return on debt assumption we use in our WACC calculation

The capex stimulus package extends French motorway concession assets by three years



32



Figure 32: Abertis bull case scenario


Investment Thesis, Valuation and Risks

Abertis (Underweight; Price Target: €16.00)

Investment thesis

Abertis is an international group which manages mobility and telecommunications infrastructures through three business areas: toll roads, telecommunications infrastructures and airports. We believe that the observed decrease in bond yields over the last year has supported the shares to re-rate, and we feel much of the expected recovery in GDP has been priced in, although we would expect the stock to continue to benefit from further yield compression. In addition to this, improving traffic in Spain would continue to support the shares but we are mindful that the Spanish government guarantee on traffic caps the valuation upside, while we highlight here that Abertis generates only 33% of EBITDA from Spanish toll roads which have shorter than average concession durations when compared to European peers.

Valuation

We use a sum-of-the-parts valuation given the diversified profile of the company. We value most of Abertis’ concession assets using a DCF approach, given the predictability of cash flows over finite concession lives. For smaller assets, we have used EV/EBITDA multiples, and for their publicly listed stakes, we have used current market values. Our WACC assumptions are adjusted to reflect the location risk of Abertis' three main geographic exposures: Spain (6.47%), France (5.69%) and LatAm (8.06%). The blended WACC (6.6%) combines those country WACCs, incorporating JPM estimates of Spanish, French and Brazilian equity risk premia and 10yr/30yr bond yields.

Risks to Rating and Price Target

Decreasing bond yields would move market valuation up. A better than expected Spanish/French/Brazilian economy could lead to more dramatic traffic variations in Spain/France/Brazil, on the upside, as well as a return of inflation. In addition, a material change in interest rates would impact EPS as well as DCF valuations. We do not take into account new potential acquisitions, which the company is targeting, and which might change our view.

€ 16

1.3%

1.1%

3.1% € 17

15.0

15.5

16.0

16.5

17.0

PT LT Inflation +50bps Cost of Debt -30bps Capex Stimulus Bull Case PT

33



Abertis: Summary of FinancialsProfit and Loss Statement Cash flow statement€ in millions, year end Dec FY12 FY13 FY14E FY15E FY16E € in millions, year end Dec FY12 FY13 FY14E FY15E FY16E

Revenues 4,039 4,653 4,987 5,275 5,527 EBIT 1,291 1,721 1,909 2,084 2,235% Change Y/Y 3.2% 15.2% 7.2% 5.8% 4.8% Depreciation & amortization 1,172 1,202 1,260 1,335 1,389

EBITDA (basic) 2,463 2,923 3,169 3,419 3,624 Change in working capital & Other 0 95 0 0 0% Change Y/Y 0.4% 18.7% 8.4% 7.9% 6.0% Cash flow from operations 2,282 2,719 2,833 3,083 3,284EBITDA Margin (%) 61.0% 62.8% 63.5% 64.8% 65.6%

EBIT 1,291 1,721 1,909 2,084 2,235 Taxes (93) (330) (352) (403) (455)% Change Y/Y (14.9%) 33.3% 11.0% 9.2% 7.2% Capex (507) (763) (1,048) (846) (689)EBIT Margin (%) 32.0% 37.0% 38.3% 39.5% 40.4% Net Interest (570) (676) (734) (734) (705)

Net Interest income/(expense) (570) (676) (734) (734) (705) Free cash flow 1,775 1,955 1,785 2,237 2,594Earnings before tax 784 1,082 1,214 1,390 1,570% change Y/Y (23.5%) 37.9% 12.2% 14.5% 13.0% Disposals/(purchase) (828) 581 (626) (133) (164)Tax (charge) (93) (330) (352) (403) (455) Equity raised/repaid - - - - -

Tax as a % of PBT 11.9% 30.5% 29.0% 29.0% 29.0% Dividends paid (550) (547) (655) (765) (877)Net Income (Reported) 1,025 618 722 843 966 Other - - - - -

% change Y/Y 42.2% (39.7%) 16.8% 16.7% 14.7%Shares Outstanding (Av.m) 815 856 898 943 943 DPS (€, declared, gross) 0.67 0.66 0.73 0.81 0.93EPS (Reported, basic, €) 1.26 0.72 0.80 0.89 1.02

% Change Y/Y 35.4% (42.6%) 11.2% 11.2% 14.7%

Balance sheet Ratio Analysis€ in millions, year end Dec FY12 FY13 FY14E FY15E FY16E € in millions, year end Dec FY12 FY13 FY14E FY15E FY16E

Current assets 22,207 23,385 24,175 24,194 24,039 EBITDA Margin (%) 61.0% 62.8% 63.5% 64.8% 65.6%Net working Capital (329) (376) (376) (376) (376) EBIT Margin (%) 32.0% 37.0% 38.3% 39.5% 40.4%Total assets 22,207 23,385 24,175 24,194 24,039 Net margin (%) 25.4% 13.3% 14.5% 16.0% 17.5%Net debt 14,151 13,155 13,737 13,535 13,142 Sales growth (%) 3.2% 15.2% 7.2% 5.8% 4.8%Provisions & long term liabilities 2,776 3,264 3,264 3,264 3,264 Attributable net profit growth (%) 42.2% (39.7%) 16.8% 16.7% 14.7%Shareholders' equity 4,951 6,590 6,797 7,019 7,257 EPS growth (%) 35.4% (42.6%) 11.2% 11.2% 14.7%Total Liabilities & Shareholders Equity 22,207 23,385 24,175 24,194 24,039

Interest coverage (x) 4.3 4.3 4.3 4.7 5.1Net debt/EBITDA (x) 5.8 4.5 4.3 4.0 3.6Sales/assets (x) 0.2 0.2 0.2 0.2 0.2Assets/equity (x) 4.7 4.0 3.6 3.5 3.4ROE 12.8% 9.4% 10.6% 12.0% 13.3%ROCE 6.1% 6.2% 6.7% 7.2% 7.8%ROIC 6.1% 6.1% 6.1% 6.5% 6.8%

Source: Company reports and J.P. Morgan estimates.

34



Atlantia

Remain Overweight: Portfolio optimization and a falling cost of debt are the next opportunities

Bond yields unlikely to be a major support from here. The share price of Atlantia has benefited over the last 12 months from support provided by failing Italian bond yields. Our strategists believe the big outperformance of bond proxies in H1 should fade from here, and while we note that a tightening in peripheral spreads will continue to impact the share price, we think stock specifics may become more important from here.

Italian traffic still on recovery trajectory and plenty to go. We forecast Italian traffic to grow 2% this year, above management guidance for around 1.5%, as traffic proxies, consumer confidence and PMIs all remain strong. In our opinion however, these assumptions are still conservative given that traffic remains c.10% below normalized levels.

Falling cost of debt an opportunity. We see scope for Atlantia to continue reducing its cost of debt despite rising bond yields. At present, we estimate a 5.2% average cost of Italian debt, materially higher than the 2% €750m seven year money the company raised in November.

Long term we see value in the portfolio: airport stake sale. The Rome airport system holds the key to value crystallization at Atlantia, in our opinion. Now that a deal between Alitalia and Etihad is close to completion, we believe Atlantia could at some point wish to consider opening the capital of ADR to foreign investors (although this is not something the company have started talking about yet). Should a stake sale lead to a re-rating where we could value ADR on 15x EV/2014e EBITDA, this could add €3.20 per share to our Atlantia valuation.

Remain Overweight. We make no changes to our estimates or price target here, having already updated our numbers post Q1. We remain Overweight the stock with a €24 price target, providing potential 21% upside to the current share price.

Overweight

Company DataPrice (€) 19.77Date Of Price 09 Jul 14Price Target (€) 24.00Price Target End Date 30-May-1552-week Range (€) 21.50-12.27Market Cap (€ bn) 16.33Shares O/S (mn) 826

Atlantia Spa (ATL.MI;ATL IM)

FYE Dec 2013A 2014E 2015E 2016EAdj. EPS FY (€) 0.80 0.99 1.08 1.29EPS FY (€) 0.80 1.08 1.08 1.29Revenue FY (€ mn) 4,893 5,134 5,358 5,914EBITDA FY (€ mn) 2,975 3,134 3,242 3,647EBIT FY (€ mn) 1,939 2,159 2,232 2,543EV/EBITDA (x) FY 9.0 8.5 8.2 7.3Adj P/E FY 24.6 19.9 18.4 15.4Net Debt/EBITDA FY 3.4 3.2 3.1 2.9Net Yield FY 3.8% 4.3% 4.8% 5.5%Source: Company data, Bloomberg, J.P. Morgan estimates. NOTE* - 2012 and 2013 figures are presented pro-forma and include Gemina on a FY basis.

Overweight

ATL.MI,ATL IM

Price: €19.77


Italy


Elodie Rall AC

(44-20) 7134-5911

[email protected]



YTD 1m 3m 12mAbs 19.7% -6.4% 3.8% 55.7%Rel 16.1% -4.1% 1.7% 40.6%

12

14

16

18

20

22

€


Price Performance

ATL.MI share price (€)

MSCI-Eu (rebased)

35



Bull Case Scenario gets you to €31

We run a bull case scenario for Atlantia where we assume:


That cost of debt for the company falls 30bps, the fall is reflected here via the return on debt assumption we use in our WACC calculation

ADR is valued on 15x EV/2014e EBITDA

Italian toll road traffic recovers to normalized levels by 2016 (instead of 2021 as we currently model)

Figure 33: Atlantia bull case scenario


€ 243.0% 1.5%

13.5%10.9%

€ 31

20

22

24

26

28

30

PT LT Inflation +50bps Cost of Debt -30bps Multiple Expansion Traffic recovers by 2016

Bull Case PT

36




Atlantia (Overweight; Price Target: €24.00)

Investment Thesis

Atlantia operates in the transport and communications infrastructure and network sectors, fully owning Autostrade per l'Italia, Italy’s largest toll motorway builder and operator. The company merged with Gemina, the concession holder of the two Rome airports in 2013. The shares have rerated YTD driven by falling Italian bond yields, and a better economic outlook for Italy. We feel there is further upside potential from: 1) continued recovery of toll road traffic, 2) dividends which are now linked to EPS, 3) a falling cost of debt as the company benefits from refinancing at lower rates, and 4) unlocking air traffic and improving retail spending at Gemina through a dedicated capex plan. 5) The crystallization of value via a stake sale of ADR at higher multiples than the market gives credit for at present. We remain Overweight.

Valuation

We value Atlantia using a DCF-based sum of the parts as we believe this is the best approach to capture the value of its predictable and growing cash flow over the concession life. We use a WACC of 7.15%, which is derived from JPM estimates of Italian equity risk premium and 30yr bond yields. Our DCF driven PT of €24 suggests 18% potential upside to the current share price. Atlantia trades on 10x 2014E EV/EVITDA, while offering attractive dividend yield of 4.2% and equity IRR of 9.6%.


The main risks to our rating are, in our view: 1) Changes in bond yields, which would lead to changes in our WACC assumption that would alter our valuation of Atlantia; 2) Renewed regulatory concerns in Italy (although we note that Atlantia's concession contract is highly defendable under European law and Gemina's newERA was just signed in December 2012) would weigh on Atlantia's share price; 3) Improved or worse economic forecasts for Italy, including a relaxation or tightening of authority measures, which would impact traffic positively or negatively traffic.

37



Atlantia: Summary of FinancialsProfit and Loss Statement Cash flow statement€ in millions, year end Dec FY12 FY13 FY14E FY15E FY16E € in millions, year end Dec FY12 FY13 FY14E FY15E FY16E

Revenues 4,579 4,893 5,134 5,358 5,914 EBIT 1,766 1,939 2,159 2,232 2,543% Change Y/Y 17.3% 6.9% 4.9% 4.4% 10.4% Depreciation & amortization 889 1,036 975 1,010 1,104

EBITDA (basic) 2,655 2,975 3,134 3,242 3,647 Change in working capital & Other 0 267 174 268 183% Change Y/Y 12.8% 12.0% 5.4% 3.4% 12.5% Cash flow from operations 1,251 1,869 2,038 2,167 2,350EBITDA Margin (%) 58.0% 60.8% 61.0% 60.5% 61.7%

EBIT 1,766 1,939 2,159 2,232 2,543 Taxes (342) (459) (544) (584) (669)% Change Y/Y 1.0% 9.8% 11.4% 3.4% 13.9% Capex (1,617) (820) (1,050) (1,450) (1,070)EBIT Margin (%) 38.6% 39.6% 42.1% 41.6% 43.0% Net Interest (621) (755) (708) (687) (718)

Net Interest income/(expense) (621) (724) (689) (653) (684) Free cash flow (366) 1,049 988 717 1,280Earnings before tax 1,148 1,208 1,470 1,578 1,858% change Y/Y (2.1%) 5.2% 21.7% 7.4% 17.7% Disposals/(purchase) 0 0 0 0 0Tax (charge) (342) (459) (544) (584) (669) Equity raised/repaid 3,200 0 0 0 0

Tax as a % of PBT 29.8% 38.0% 37.0% 37.0% 36.0% Dividends paid (485) (290) (987) (782) (903)Net Income (Reported) 997 664 890 889 1,063 Other - - - - -

% change Y/Y 11.0% (33.4%) 34.1% (0.2%) 19.6%Shares Outstanding (Av.m) 826 826 826 826 826 Beginning debt (11,094) (11,094) (10,010) (9,914) (9,979)EPS (Reported, basic, €) 0.94 0.80 0.99 1.08 1.29 Ending debt (11,094) (10,010) (9,914) (9,979) (10,603)

% Change Y/Y (23.8%) (14.5%) 23.8% 8.3% 19.6% DPS (€, declared, gross) 0.75 0.75 0.84 0.95 1.09


Current assets 5,788 5,986 6,066 6,265 6,369 EBITDA Margin (%) 58.0% 60.8% 61.0% 60.5% 61.7%Intangible assets 24,637 24,704 24,900 25,500 26,627 EBIT Margin (%) 38.6% 39.6% 42.1% 41.6% 43.0%Property, plant and equipment 243 243 243 243 243 Net margin (%) 21.8% 13.6% 17.3% 16.6% 18.0%Long term investments 122 121 51 51 51Total assets 34,810 34,965 35,061 35,750 36,880 Sales growth (%) 17.3% 6.9% 4.9% 4.4% 10.4%

Attributable net profit growth (%) 11.0% (33.4%) 34.1% (0.2%) 19.6%EPS growth (%) (23.8%) (14.5%) 23.8% 8.3% 19.6%

Net debt 11,094 10,010 9,914 9,979 10,603Provisions 5,720 5,905 6,095 6,256 6,416Provisions & long term liabilities 1,491 1,491 1,491 1,491 1,491 Interest coverage (x) 4.3 4.1 4.5 5.0 5.3Shareholders' equity 5,827 5,874 6,067 6,174 6,333 Net debt/EBITDA (x) 4.2 3.4 3.2 3.1 2.9Total Liabilities & Shareholders Equity 34,809 34,965 35,071 35,759 36,890 Sales/assets (x) 0.2 0.1 0.1 0.2 0.2

Assets/equity (x) 5.7 6.0 5.9 5.8 5.8ROE 13.3% 11.3% 13.5% 14.4% 16.8%ROCE 7.4% 5.8% 6.8% 7.0% 7.9%ROIC 5.4% 5.7% 2.3% 3.9% 4.3%

Source: Company reports and J.P. Morgan estimates.NOTE* - 2012 and 2013 figures are presented pro-forma and include Gemina on a FY basis.

38



Vinci

Remain Overweight: strong traffic, international diversification and catalysts to come

French contracting may pause for breath going into Q2… We are cautious on French contracting momentum going into H1 results, but remain Overweight Vinci as in this environment we still prefer its more geographically diversified profile (almost half of contracting is international).

…But strong traffic should help to offset this effect. We expect traffic will continue to make solid progress towards a recovery throughout the rest of the year. We forecast 2% traffic growth in 2014 across all our French toll roads, in line with Vinci management guidance.

We still see plenty of short term catalysts. We remain Overweight on Vinci as the stock is likely to benefit from several near term catalysts in our opinion. Among these we identify capex stimulus plan, which should be signed later this year and would add 4.1% to our valuation as well as the Ecotax, which even in a reduced form, has the potential to boost heavy goods vehicle traffic on French toll roads. Finally, we think the company is likely to announce a special dividend as it looks to return capital from the sale of a 75% stake in its car parks division to shareholders.

Longer term, we think portfolio management could unlock value. Lookingfurther ahead, we think the biggest opportunity at Vinci is the potential for the company to unlock value by pursing a strategy of asset stake sales to close the conglomerate discount the market applies. In our opinion, Vinci could crystallize the value of its motorway concessions where we think it has the greatest room to maneuver when compared to peers given its 100% ownership and complete control.

No change to our €59 PT, we see 14% potential upside. We make no changes to our estimates or price target here as we wait further clarity on the accounting treatment of the sale of the car parks division at the H1 results. We maintain our Overweight recommendation.

Overweight


Vinci (SGEF.PA;DG FP)

FYE Dec 2013A 2014E 2015E 2016EAdj. EPS FY (€) 3.54 3.84 4.02 4.26EPS FY (€) 3.54 3.84 4.02 4.26Revenue FY (€ mn) 40,337 40,127 40,578 41,064EBITDA FY (€ mn) 5,597 5,980 6,185 6,383EBIT FY (€ mn) 3,670 3,971 4,104 4,254EBIT Margin FY 9.1% 9.9% 10.1% 10.4%EV/EBITDA (x) FY 8.4 7.8 7.3 6.9P/E (x) FY 14.7 13.5 12.9 12.2Net Debt/EBITDA FY 2.5 2.3 2.0 1.7Net Yield FY 3.4% 3.7% 3.9% 4.1%Source: Company data, Bloomberg, J.P. Morgan estimates.

Overweight

SGEF.PA,DG FP

Price: €51.95


France


Elodie Rall AC

(44-20) 7134-5911

[email protected]



YTD 1m 3m 12mAbs 9.7% -8.3% -4.5% 33.1%Rel 6.1% -6.0% -6.6% 18.0%

35

40

45

50

55

60

€


Price Performance

SGEF.PA share price (€)

MSCI-Eu (rebased)

39




We run a bull case scenario for Vinci where we assume:



The contracting divisions re-rate to 10x EV/2014e EBIT, multiples closer to listed contracting peers

Cofiroute and ASF toll roads are valued on 11x EV/2014e EBITDA

The capex stimulus plan is approved and results in three year concession extensions

Figure 34: Vinci bull case scenario


€ 592.6% 0.5%

19.0%

35.9%4.1% € 82

50

55

60

65

70

75

80

85

PT LT Inflation +50bps Cost of Debt -30bpsContracting Multiple Expansion

Toll Road Multiple Expansion

Capex Stimulus Bull Case PT

40




Vinci (Overweight; Price Target: €59.00)

Investment Thesis

Vinci is the world leader in construction and concessions, employing more than 183,000 people in some 100 countries. We remain Overweight on Vinci as we believe the company will be able to continue to deliver above average operating margins on its contracting divisions, while the company’s efforts to diversify, both geographically (half of contracting activities take place outside of France) and into new activities (airports) which should enhance bottom line growth, and allow the group to cope with a potential slowdown in French contracting activity. Additionally, we believe there is potential for value crystallization in the sector which could be realized through portfolio management activities such as asset stake sales at higher multiples. We identify near term catalysts such as the capex stimulus package, Ecotax and the potential for a special dividend as offering further support.

Valuation

We have a SOTP April-15 PT of €59. Key components of our SOTP model are:

Concessions: DCF method for the valuation of the concessions, using a WACC of 5.60% (from 5.93% previously), an average traffic growth of c. 1.5% p.a. for the toll roads until the end of the concessions and a long-term CPI inflation assumption of 1.5% p.a.

Contracting: An EV/EBIT multiple on 2014 EBIT assumptions for each of the contracting divisions.


The main risks to our rating are, in our view: 1) Increasing French bond yields and its impact on our WACC for the DCF valuation of the concession divisions; 2) more severe than anticipated austerity cuts and tax hikes; 3) a fall back into a recessionary scenario would impact the contracting revenues generated to the private sector; 4) Higher than expected decline in industrial production: would drive heavy vehicle traffic down, and 5) decline in contracting margins, given Vinci's margins have been fairly resilient over the past 6 years.

41



Vinci: Summary of FinancialsProfit and Loss Statement Cash flow statement€ in millions, year end Dec FY13 FY14E FY15E FY16E € in millions, year end Dec FY13 FY14E FY15E FY16E

Revenues 40,337 40,127 40,578 41,064 EBIT 3,670 3,971 4,104 4,254% change Y/Y 4.4% (0.5%) 1.1% 1.2% Depreciation & amortization 1,927 2,009 2,080 2,129

EBITDA (basic) 5,597 5,980 6,185 6,383 Change in working capital & Other 6 (100) 0 0% change Y/Y 3.3% 6.9% 3.4% 3.2% Cash flow from operations 5,603 5,880 6,185 6,383EBITDA Margin (%) 13.9% 14.9% 15.2% 15.5%

EBIT 3,670 3,971 4,104 4,254 Taxes (1,070) (1,133) (1,183) (1,254)% change Y/Y (0.0%) 8.2% 3.3% 3.6% Capex (1,468) (1,584) (1,638) (1,440)EBIT Margin (%) 9.1% 9.9% 10.1% 10.4% Net Interest (560) (659) (646) (587)

Net Interest income/(expense) (560) (659) (646) (587) Free cash flow 4,135 4,296 4,546 4,943Earnings before tax 3,117 3,300 3,445 3,654% change Y/Y 4.1% 5.9% 4.4% 6.1% Disposals/(purchase) (3,220) (1,000) (500) (500)Tax (charge) (1,070) (1,133) (1,183) (1,254) Equity raised/(repaid) 423 423 423 423

Tax as a % of PBT 34.3% 34.3% 34.3% 34.3% Dividends paid (1,072) (1,172) (1,225) (1,299)Net Income (Reported) 1,963 2,133 2,228 2,366 Other (222) (222) (222) (222)

% change Y/Y 2.4% 8.7% 4.5% 6.2% Change in net debt 1,577 (623) (1,133) (1,443)Shares Outstanding (Av.m) 589 589 589 589 DPS (€, declared, gross) 1.77 1.92 2.01 2.13EPS (Reported, basic, €) 3.54 3.84 4.02 4.26

% Change Y/Y 2.4% 8.7% 4.5% 6.2%

Balance sheet Ratio Analysis€ in millions, year end Dec FY13 FY14E FY15E FY16E € in millions, year end Dec FY13 FY14E FY15E FY16E

Current assets 18,087 17,909 1,502 1,552 EBITDA margin (%) 13.9% 14.9% 15.2% 15.5%Goodwill 7,000 6,998 6,996 6,994 Net margin (%) 4.9% 5.3% 5.5% 5.8%Intangible assets 417 417 417 417Property, plant and equipment 30,142 29,717 29,275 28,586 Sales growth (%) 4.4% (0.5%) 1.1% 1.2%Long term investments 1,274 2,274 2,774 3,274 Attributable net profit growth (%) 2.4% 8.7% 4.5% 6.2%Net working Capital 18,087 17,909 1,502 1,552 EPS growth (%) 2.4% 8.7% 4.5% 6.2%Total Assets 56,920 57,315 40,964 40,823

Interest coverage (x) 10.0 9.1 9.6 10.9Net debt 14,104 13,481 12,348 10,905 Net debt/EBITDA (x) 2.5 2.3 2.0 1.7Provisions & long term liabilities 7,605 7,605 7,605 7,605 Sales/assets (x) 0.7 0.7 0.8 1.0Shareholders' equity 14,260 15,456 16,695 17,997 Assets/equity (x) 4.1 3.9 3.1 2.4Total Liabilities & Shareholders Equity 56,920 57,315 40,964 40,823 ROE 14.4% 14.4% 13.9% 13.6%

ROCE 9.0% 9.1% 9.3% 9.6%


42



Eiffage

Staying Neutral on near term concerns, but positive on long term materially positive opportunities

Staying Neutral due to near term headwinds in French contracting activity. We remain Neutral on Eiffage with a reduced July-15 PT of €54 from €58 previously as we adopt a more cautious stance on French contracting momentum (we estimate the company generates c. 80% of its contracting revenues from France). We downgrade our contracting margin assumptions for the group by 10bps in 2014 & 2015, but our EPS forecasts are up 2% and 4% in 2014 and 2015 respectively, as we have decreased our cost of debt assumption. We continue to see 43% EPS growth between 2014 and 2016 partly coming from margin restructuring and solid traffic increase.

But note high potential for value creation from a falling cost of debt… We see scope for the group to continue to be able to decrease the average cost of debt of APRR (of c. 5%) given the upcoming maturities providing credit conditions remain favorable (APRR raised €500m of six year money in January at a coupon on 2.25%, and raised the same amount again in April with five year bonds offering a variable 75bp coupon). In addition, we believe the company will look to refinance the Eiffarie debt (€2.3bn) before February 2015 when there a scheduled 60bps step up in interest costs from the 300bps current spread. We think the company could currently refinance this debt at much more attractive levels (potentially as low as 200bps) which would boost our 2015 EPS forecasts by 8%.

…as well as from deleveraging. Eiffage has a €2bn net debt reduction target by 2016, which, if achieved, represents c. €22 per share. We think the company could reach this target this through 1) PPP disposals (this year the sale of the Hospital Sud Francilien PPP which should contribute €400m towards the deleveraging effort), 2) high cash flow generation from APRR from improving traffic and decreasing cost of debt, and 3) We also believe the company is working on increasing its distributable reserves through the reevaluation of the value of APPR’s fully owned subsidiary AREA.

Near term catalysts likely. In our view, Eiffage should be a main beneficiary (together with Vinci and Abertis) of the French capex stimulus package which we expect will be signed in the second half of this year. We think this could add 6%to our PT for Eiffage. On the top of this, we expect extra compensation for the increase of the 'redevance domaniale' to be included in the package and note the application of the ecotax, even in a reduced scope, has the capability to boost heavy vehicle traffic further on French toll roads.

Neutral


Eiffage SA (FOUG.PA;FGR FP)


2014E(Curr)

2015E(Prev)

2015E(Curr)

2016E

Adj. EPS FY (€) 2.96 3.55 3.63 4.17 4.33 5.20EPS FY (€) 2.96 3.55 3.63 4.17 4.33 5.20Revenue FY (€ mn) 14,264 14,404 14,368 14,521 14,490 14,678EBITDA FY (€ mn) 2,175 2,227 2,229 2,314 2,328 2,474EBIT FY (€ mn) 1,330 1,361 1,363 1,426 1,441 1,545EBIT Margin FY 9.2% 9.4% 9.5% 9.8% 9.9% 10.5%EV/EBITDA (x) FY 8.1 7.9 7.7 7.4 7.2 6.5P/E (x) FY 16.4 13.7 13.4 11.6 11.2 9.3Net Debt/EBITDA FY 6.1 5.8 5.8 5.3 5.3 4.7Net Yield FY 2.5% 2.5% 3.0% 2.5% 3.6% 4.3%Source: Company data, Bloomberg, J.P. Morgan estimates.

Neutral

FOUG.PA,FGR FP

▼

Price: €48.53

Price Target: €54.00Previous: €58.00

France


Elodie Rall AC

(44-20) 7134-5911

[email protected]



YTD 1m 3m 12mAbs 17.6% -12.3% -10.1% 25.2%Rel 14.0% -10.0% -12.2% 10.1%

35

40

45

50

55

60

€


Price Performance

FOUG.PA share price (€)

MSCI-Eu (rebased)

43



Changes to estimates +2.3% on 2014 EPS

We slightly temper our margin expectations at Eiffage in line with our cautious stance for French contracting in the near term, but decrease our financial charges in line with new debt issuances, which overall results in a 2.3% increase to our EPS estimates. A summary of the changes we have made to our estimates is given in Table 10.

Table 10: Summary of our Eiffage estimate changes

2014 2015 2016

2013 Old New Change Old New Change Old New Change

Total Revenue 14,264 14,404 14,368 -0.2% 14,521 14,491 -0.2% 14,745 14,677 -0.5%Growth 1.6% 1.0% 0.7% 0.8% 0.9% 1.8% 1.3%

Eiffage Construction 3,715 3,850 3,825 -0.6% 3,773 3,749 -0.6% 3,698 3,786 2.4%Public Works 4,215 4,150 4,150 0.0% 4,192 4,192 0.0% 4,233 4,233 0.0%Energy 3,159 3,100 3,100 0.0% 3,193 3,193 0.0% 3,289 3,225 -1.9%Metal 914 950 920 -3.2% 950 920 -3.2% 950 920 -3.2%Total Contracting 12,003 12,050 11,995 -0.5% 12,108 12,054 -0.4% 12,170 12,164 0.0%Concessions 2,261 2,354 2,373 0.8% 2,413 2,437 1.0% 2,575 2,513 -2.4%

EBITDA 2,175 2,227 2,229 0.1% 2,314 2,328 0.6% 2,507 2,474 -1.3%Growth 7.9% 2.4% 2.5% 3.9% 4.4% 7.7% 6.3%Margin 15.2% 15.5% 15.5% 15.9% 16.1% 17.0% 16.9%Depreciation -845 -866 -866 0.0% -887 -888 0.1% -928 -928 0.0%Provisions -20 0 0 0 0 0 0Operating Profit Ordinary Activities 1,318 1,361 1,363 0.1% 1,427 1,440 0.9% 1,579 1,546 -2.1%Growth 5.3% 3.3% 3.4% 5.1% 5.9% 10.0% 7.7%Margin 8.8% 9.1% 9.1% 4bps 9.4% 9.6% 11bps 10.3% 10.2% -18bps

Eiffage Construction 156 162 161 -0.6% 158 157 -0.6% 166 159 -4.2%Margin 4.2% 4.2% 4.2% 0bps 4.2% 4.2% 0bps 4.5% 4.2% -30bpsPublic Works 93 108 104 -3.7% 126 126 0.0% 148 127 -14.2%Margin 2.2% 2.6% 2.5% -10bps 3.0% 3.0% 0bps 3.5% 3.0% -50bpsEnergy 98 124 115 -7.3% 144 134 -6.9% 164 1454 786.6%Margin 3.1% 4.0% 3.7% -30bps 4.5% 4.2% -30bps 5.0% 4.5% -50bpsMetal 37 38 36 -5.3% 38 37 -2.6% 38 37 -2.6%Margin 4.0% 4.0% 3.9% -10bps 4.0% 4.0% 0bps 4.0% 4.0% 0bpsConcessions 954 950 968 1.9% 980 1007 2.8% 1082 1098 1.5%Margin 42.2% 40.3% 40.8% 50bps 40.6% 41.3% 70bps 42.0% 43.7% 170bps

Other Operating Costs -56 -56 -56 0.0% -56 -56 0.0% -56 -56 0.0%Operating Profit 1,262 1,305 1,307 0.2% 1,371 1,384 0.9% 1,523 1,490 -2.2%Net Interest -727 -688 -676 -1.7% -662 -650 -1.8% -645 -631 -2.2%Financial Charges -51 -40 -30 -25.0% -40 -30 -25.0% -40 -30 -25.0%PBT 484 577 601 4.2% 668 705 5.5% 837 828 -1.1%Tax -167 -199 -216 8.5% -230 -254 10.4% -289 -298 3.1%Associates 5 5 5 0.0% 5 5 0.0% 5 5 0.0%Net Profit 322 383 390 1.8% 442 456 3.2% 553 535 -3.3%Minorities -65 -75 -75 0.0% -80 -80 0.0% -84 -84 0.0%Attributable Net Profit 257 308 315 2.3% 362 376 3.9% 469 451 -3.8%Growth 16.8% 19.8% 22.6% 12.8% 19.4% 24.7% 19.9%EPS 2.96 3.55 3.63 2.3% 4.17 4.33 3.8% 5.41 5.2 -3.9%Growth 16.5% 19.9% 22.6% 17.5% 19.3% 24.9% 20.1%DPS 1.20 1.20 1.50 25.0% 1.20 1.70 41.7% 1.20 2.10 75.0%Growth 0.0% 0.0% 25.0% 0.0% 13.3% -29.4% 23.5%


New PT of €54, lowered from €58 previously

We update out Eiffage price target to €54 from €58 previously. Our price target is based on a sum of the parts methodology (see Table 11) which places the contractingdivisions on EV/EBIT multiples. Therefore our new price target is lower despite the upgrade to EPS as we have tempered our 2014 and 2015 EBIT expectations across all the contracting divisions. Our new price target offers potential 11% upside to the current share price.

44



Table 11: We have a new €54 SOTP derived PT for Eiffage

Business Stake Enterprise value Method MultipleValue €m 2014 2014/15

ContractingEiffage Construction 100% 954 EV/2014-15 EBIT multiple 6.0xPublic works 100% 688 EV/2014-15 EBIT multiple 6.0xEnergy 100% 1,120 EV/2014-15 EBIT multiple 9.0xMetal 100% 218 EV/2014-15 EBIT multiple 6.0xContracting enterprise value 100% 2,980 7.2xConcessionEiffarie/APRR 50.0% 6,933 DCF at YE 2013E 9.1Other concessions (incl Millau & A65) 2,622 Book valueConcessions enterprise value 9,556

Total 12,536Net debt 2014E (12,884)Plus Macquarie share in net debt 5,023Plus minorities debt Millau & A65 526Less pension liabilities (200) JPM estimatesEiffage SOTP equity value 5,001Per share 54



We run a bull case scenario for Eiffage where we assume:



The contracting divisions re-rate to 10x EV/2014e EBIT closer to listed peers

APRR is valued on an 11x EV/2014e EBITDA multiple

The company achieves its €2bn deleveraging plan, work c.€22 a share

The capex stimulus plan is approved and results in a three year concession extension for APRR

Figure 35: Eiffage bull case scenario


€ 54 2.5% 1.1%

28.0%

28.5%

40.0% 6.1% € 112

50

60

70

80

90

100

110

120

PT LT Inflation +50bps

Cost of Debt -30bps

Contracting Multiple

Expansion

Toll Road Multiple Expansion

€2bn Deleveraging

Capex Stimulus Bull Case PT

45




Eiffage (Neutral; Price Target: €54.00)

Investment thesis

Eiffage is a leading company in the European concessions and public works sector, operating through five business lines: concessions, construction, public works, energy and metal. We believe Eiffage will continue to post margin improvement over the coming years, and will accelerate its deleveraging efforts, but think valuation is already fairly discounting these while the mixed macroeconomic outlook on France could slow margin progression.

Valuation

Our SOTP-based PT is €54. We use a WACC assumption for the valuation of the toll road divisions of 5.77%.

We use EV/EBIT multiples of 6x to value the contracting divisions of Eiffage (except for the Energy division which we value on 9x), in line with our assumptions for Vinci.


The main risks to our view are: 1) Increased interest rates, bond yields, resulting in higher WACC would have an impact on our DCF valuations. Alternatively, decreases in rates would result in lower WACC and higher DCF-valuations for the concessions; 2) Worse or better French economics than expected would impact both construction outputs and motorway traffic; 3) More severe than anticipated austerity cuts in France would impact construction activity; 4) Poorer or better contracting margins than expected.

46



Eiffage: Summary of FinancialsProfit and Loss Statement Cash flow statement€ in millions, year end Dec FY13 FY14E FY15E FY16E € in millions, year end Dec FY13 FY14E FY15E FY16E

Revenues 14,264 14,368 14,490 14,678 EBIT 1,318 1,363 1,441 1,545% change Y/Y 1.6% 0.7% 0.8% 1.3% Depreciation & amortization 845 866 888 928

EBITDA (basic) 2,183 2,229 2,328 2,474 Change in working capital & Other (50) 0 0 0% change Y/Y 8.2% 2.1% 4.5% 6.2% Cash flow from operations 2,133 2,229 2,328 2,474EBITDA Margin (%) 15.3% 15.5% 16.1% 16.9%

EBIT 1,318 1,363 1,441 1,545 Taxes (167) (216) (254) (298)% change Y/Y 9.9% 3.4% 5.7% 7.3% Capex (816) (826) (821) (812)EBIT Margin (%) 9.2% 9.5% 9.9% 10.5% Net Interest (727) (676) (650) (631)

Net Interest income/(expense) (727) (676) (650) (631) Free cash flow 1,316 1,403 1,508 1,662Earnings before tax 484 601 705 828% change Y/Y 25.0% 24.2% 17.3% 17.5% Disposals/(purchase) 222 (60) (60) (60)Tax (charge) (167) (216) (254) (298) Equity raised/(repaid) 0 0 0 0

Tax as a % of PBT 34.5% 36.0% 36.0% 36.0% Dividends paid (120) (120) (120) (120)Net Income (Reported) 257 315 376 451 Other 0 0 0 0

% change Y/Y 16.7% 22.5% 19.6% 19.9% Change in net debt (392) (495) (588) (716)Shares Outstanding (Av.m) 90 90 90 90 DPS (€, declared, gross) 1.20 1.45 1.73 2.08EPS (Reported, basic, €) 2.96 3.63 4.34 5.20

% Change Y/Y 16.7% 22.5% 19.6% 19.9%

Balance sheet Ratio Analysis€ in millions, year end Dec FY13 FY14E FY15E FY16E € in millions, year end Dec FY13 FY14E FY15E FY16E

Current assets 5 5 5 5 EBITDA margin (%) 15.3% 15.5% 16.1% 16.9%Goodwill 2,849 2,849 2,849 2,849 Net margin (%) 1.8% 2.2% 2.6% 3.1%Intangible assets 172 208 244 280Property, plant and equipment 12,421 12,356 12,261 12,114 Sales growth (%) 1.6% 0.7% 0.8% 1.3%Long term investments 1,754 1,759 1,764 1,769 Attributable net profit growth (%) 16.7% 22.5% 19.6% 19.9%Net working Capital (7,429) (794) (984) (1,174) EPS growth (%) 16.7% 22.5% 19.6% 19.9%Total Assets 18,179 18,144 18,082 17,971

Interest coverage (x) 3.0 3.3 3.6 3.9Net debt 13,379 12,884 12,296 11,580 Net debt/EBITDA (x) 6.1 5.8 5.3 4.7Provisions & long term liabilities 1,483 1,483 1,483 1,483 Sales/assets (x) 0.8 0.8 0.8 0.8Shareholders' equity 2,708 2,978 3,314 3,729 Assets/equity (x) 7.2 6.5 6.0 5.4Total Liabilities & Shareholders Equity 18,179 18,144 18,082 17,971 ROE 10.2% 11.2% 12.4% 13.6%

ROCE 5.4% 5.5% 5.9% 6.5%


47



Aeroports de Paris (ADP)

Increase PT to €101 but remain Neutral

We are factoring in better than expected traffic performance. We upgrade our 2014 traffic forecast following strong traffic performance YTD, which has seen the number of passengers handled by ADP in Paris rise 3.8% from January to May. We are now expecting 2.5% growth for 2014, vs. our previous estimates and management guidance for 2%. We highlight that we think there is still upside risk here, but prefer to remain conservative given that comps get tougher in H2and in light of the recent profit warning by Air France- KLM which makes up almost 50% of ADP’s Paris traffic.

Still positive on retail despite recent FX headwinds. We are confident ADP can continue to add value through its retail division despite the FX movements which have proved a headwind recently (retail revenue was up just 1.1% in Q1 compared to traffic which was up 3.6%). The company has maintained its target to reach €19 airside spend per passenger by 2015 (up from €17.7 in 2013). We think this is achievable and forecast 4% growth in retail activities this year and 6.6% next year.

Coeur d’Orly a longer term value driver. As we discussed in our note (Traffic ticking up but retail in transit), we think the progress ADP is making towards the development of Coeur d’Orly is positive as the project represents long term value which is not yet captured in our forecasts and therefore represents upside to our price target. The first phase of construction (the Askia office building) was launched last year but the development will eventually comprise a 41,000sqm shopping mall and 70,000sqm of offices. In particular, we applaud ADP's strategy of concentrating on core assets and targeting specific overseas opportunities (it is currently bidding for LaGuardia with TAV) given current airport transaction multiples.

Valuation looking full but M&A option remains a tailwind. We increase our DCF derived 12 month price target to €101 but maintain our Neutral rating as we feel on 11x EV/EBITDA the shares are fairly priced here. However, we note that M&A speculation will likely continue to provide a support, as we think it remains a possibility that the French government (50.63%) at some point sell a further stake.

Neutral


Aeroports de Paris (ADP) (ADP.PA;ADP FP)


2014E(Curr)

2015E(Prev)

2015E(Curr)

2016E

Adj. EPS FY (€) 3.07 3.79 3.79 4.27 4.55 5.16EPS FY (€) 3.08 3.79 3.79 4.27 4.55 5.16Revenue FY (€ mn) 2,759 2,868 2,840 2,981 2,962 3,074EBITDA FY (€ mn) 1,075 1,126 1,123 1,177 1,198 1,235EBIT FY (€ mn) 637 693 682 740 758 796EV/EBITDA (x) FY 10.8 9.6 10.2 9.2 9.4 8.9P/E (x) FY 31.3 25.5 25.4 22.6 21.2 18.7Net Debt/EBITDA FY 2.9 2.7 2.6 2.5 2.3 2.0Dividend Yield FY 1.9% 2.4% 2.4% 2.7% 2.8% 3.2%Source: Company data, Bloomberg, J.P. Morgan estimates.

Neutral

ADP.PA,ADP FP

▲

Price: €96.41


France


Elodie Rall AC

(44-20) 7134-5911

[email protected]



YTD 1m 3m 12mAbs 16.9% -1.0% 6.4% 29.0%Rel 13.3% 1.3% 4.3% 13.9%

70

80

90

100

€


Price Performance

ADP.PA share price (€)

MSCI-Eu (rebased)



48



Traffic growth above management guidance

Reported traffic figures for the month of May show YTD the number of passengers handled at the Paris airports grew 3.8% on last year, above management guidance for growth of 2%. The better than expected performance has been driven by a 4.9% increase in the number of European passengers and a 4.4% growth in international customers. Meanwhile domestic French traffic remains flat on 2013.

We expect the strong traffic performance to be supported into the summer programme by significant capacity additions; a consequence of new airlines such as Jet Airways entering the hub and an increasing number of wide-body planes being added to the schedule. However, we note that capacity additions does not guarantee passenger traffic and that comps get harder into the second half of the year, but are optimistic these positive developments will manifest in passenger numbers. We therefore cautiously increase our 2014 traffic forecast to 2.5%, above the 2% previous management guidance. We expect an update to management’s trafficoutlook at H1 results.

Traffic and EPS upgrades

We adjust our 2014 estimates for an upgrade to our traffic forecasts for the year following a better than an expected development in passenger numbers. Our new financial forecasts reflect the following changes in our modeling assumptions:

1. An increase in our 2014 passenger traffic growth assumption from 2% to 2.5%. This change increases our Aviation revenue assumption by 0.5% to €1,695mfrom €1,687m.

2. We remove the contribution from ADPI and TAV Construction from the Other Activities division and remodel it into the new International and Airport Developments division which comprises the previous Airport Investments business segment. This is inline with the recent divisional reorganization.

3. We account for the mothballing of the cogeneration plant that was closed in Q1, assuming that the plan remains incapacitated for the remainder of the year. This has a negative 2% impact on our Retail and Services divisional revenue assumption (now €950.5m for 2014).

4. Mark to market our Real Estate revenue assumptions as this business broadly tracks the construction index which is down 1.7% this year. This results in a lowering of our Real Estate revenue contribution by €18.5m (or 7%) to €261.5m.

5. We increase our Associates contribution materially in 2015 and 2016 which is largely responsible for our upgrades to EPS in those years. We are now basing our Associates contribution on consensus net income numbers for TAV.

Price Target increased to €101, maintain Neutral

Our new estimates see us upgrade our DCF derived 12 month price target from €96 to €101, providing just 4% potential upside to the current share price. We use a WACC of 6.84% in our calculations, market to market for the French 10yr, and maintain our Neutral rating on ADP.

49




Aeroports de Paris (ADP) (Neutral; Price Target: €101.00)

Investment Thesis

ADP is one of the largest European airport operators, with two of the busiest airports under its control: Charles de Gaulle (61.0m passengers) and Orly (27.1m passengers). In addition, the company recently acquired a 38% interest in the largest Turkish airport operator TAV. In our view, ADP’s share should continue to be supported by the possibility of further stake sale from the French Government. Our new PT is €101 (4% potential upside).

Valuation

Our 12-month target price of €101 is based on our 50-year DCF valuation. We factor in an economic downturn once every 10 years. Our DCF uses a WACC of 6.84% calculated based on a beta of 0.89 and a risk free rate based on the 10-year French government bond yield, adjusted for implied market levels.


We see a number of upside/downside risks that may prevent the stock from achieving our rating and price target, including: changes to GDP growth; the strategy and success of ADP's airline customers; fluctuation and increase in oil prices; changes in taxation and environmental constraints; changes to the French government's holding in ADP (and French law thereon); changes in bond yield and financing costs; EU initiated regulatory changes; geopolitical events (e.g. diseases, wars) and terrorism; technological change (especially with regard to security procedures) and, consumer confidence impact on retail spend.

50



Aeroports de Paris (ADP): Summary of FinancialsProfit and Loss Statement Cash flow statement€ in millions, year end Dec FY12 FY13 FY14E FY15E FY16E € in millions, year end Dec FY12 FY13 FY14E FY15E FY16E

Revenues 2,640 2,759 2,840 2,962 3,074 EBIT 652 656 742 832 899% change Y/Y 5.6% 4.5% 2.9% 4.3% 3.8% Depreciation & amortization 410 438 440 440 440

EBITDA (basic) 1,034 1,075 1,123 1,198 1,235 Change in working capital & Other 108 (94) 0 0 0% change Y/Y 6.4% 3.9% 4.5% 6.7% 3.1% Cash flow from operations 815 692 815 891 950EBITDA Margin (%) 39.2% 39.0% 39.5% 40.5% 40.2%

EBIT 652 656 742 832 899 Taxes -% change Y/Y 0.1% 0.6% 13.0% 12.1% 8.1% Capex (644) (440) (444) (440) (429)EBIT Margin (%) 24.7% 23.8% 26.1% 28.1% 29.3% Net Interest - - - - -

Net Interest income/(expense) (131) (140) (108) (93) (62) Free cash flow 168 248 372 451 521Earnings before tax 520 514 633 738 837% change Y/Y (5.9%) (1.3%) 23.3% 16.6% 13.4% Disposals/(purchase) (720) 0 0 0 0Tax (charge) (176) (209) (258) (288) (326) Equity raised/(repaid) 3 (1) 0 0 0

Tax as a % of PBT 33.9% 40.8% 40.8% 39.0% 39.0% Dividends paid (174) (205) (225) (270) (306)Net Income (Reported) 339 304 375 450 511 Other 10 1 1 1 1

% change Y/Y (2.6%) (10.2%) 23.3% 20.1% 13.4%Shares Outstanding (Av.m) 99 99 99 99 99 Beginning debt 1,134 797 1,056 1,420 1,852EPS (Reported, basic, €) 3.43 3.08 3.79 4.55 5.16 Ending debt 797 1,056 1,420 1,852 2,353

% Change Y/Y (2.6%) (10.2%) 23.3% 20.1% 13.4% DPS (€, declared, gross) 2.07 1.85 2.27 2.73 3.10


Cash and cash equivalent 797 1,056 1,420 1,852 2,353 EBITDA margin (%) 39.2% 39.0% 39.5% 40.5% 40.2%Accounts Receivables 512 555 555 555 555 Net margin (%) 13.0% 11.0% 13.2% 15.2% 16.6%Inventories 16 17 17 17 17 FCF margin (%) 6.4% 9.0% 13.1% 15.2% 17.0%Others 229 198 198 198 198 Sales growth (%) 5.6% 4.5% 2.9% 4.3% 3.8%Current assets 1,554 1,825 2,189 2,621 3,122 Attributable net profit growth (%) (2.6%) (10.2%) 23.3% 20.1% 13.4%LT investments 405 441 441 441 441 EPS growth (%) (2.6%) (10.2%) 23.3% 20.1% 13.4%Net fixed assets 6,028 5,987 5,990 5,990 5,979 Interest coverage (Adj. EBITDA/Net Interest) (x) 7.9 7.7 10.4 12.8 19.8Other non-current assets 1,801 1,827 1,827 1,827 1,827 Net debt/EBITDA (x) 3.1 2.9 2.6 2.3 2.0Total Assets 9,383 9,639 10,006 10,438 10,928 Sales/assets (x) 0.3 0.3 0.3 0.3 0.3Liabilities Assets/equity (x) 2.5 2.5 2.5 2.5 2.5ST loans 470 528 528 528 528 ROE 9.4% 8.1% 9.6% 10.9% 11.8%Payables 460 364 364 364 364 ROCE 5.9% 5.0% 5.4% 5.9% 6.1%Others 561 559 560 561 561 ROIC - - - - -Total current liabilities 1,491 1,450 1,451 1,452 1,453Long term debt 3,483 3,649 3,831 4,046 4,296Other liabilities 3,759 3,947 4,129 4,344 4,594Total liabilities 5,671 5,814 5,996 6,213 6,463Shareholders' equity 3,712 3,825 4,010 4,225 4,464BVPS (€) 37.51 38.65 40.52 42.70 45.11


51



Fraport

Remain Underweight, new €47 PT

Traffic lagging peers as Fraport is impacted by strikes. In the January to June period, traffic at Frankfurt airport grew 2.4%, towards the lower end of company guidance for 2 to 3% passenger growth and in contrast to the airport’s peers where we have seen traffic largely exceed expectations. This is due to the fact that Fraport was negatively impacted by a series of strikes at Lufthansa and looking ahead, we are cautious given the recent Lufthansa profit warning. We make no changes to our 2.6% traffic forecast at this stage, however as we wait to see how the summer schedule develops.

FCF is improving but T3 is on the horizon. Following years of heavy spending the FCF profile at Fraport is now improving. We forecast the company to generate €116m of FCF this year and €230m next, representing a yield of 2.5% and 5.0% respectively. This will allow Fraport to just about cover dividend payments this year, but leaves little room for major returns to shareholders as we note the company are likely to start spending on the much needed Terminal 3, for which construction spending could commence as early as 2016.

Retail spending fell in Q1 which leaves us cautious. Retail sales are in our opinion a key differentiator of airports and a clear source of upside given the dual till regulation that underlies the airports under our coverage. Spend per passenger fell 1.3% in Q1 at Frankfurt airport due in part to the impact of FX but also attributable to a lower number of passengers on intercontinental routes. We expect an improvement in this metric over the coming quarters (+5.1% for FY 2014) but think there is a risk Fraport disappoints again.

We expect Fraport to be active in M&A. The company have been active (but unsuccessful) in several international bids, in what we see as part of an increasing market appetite for airport assets. While we applaud the company for walking away from deals on the grounds of valuation, management have been clear in their indentations to expand the international portfolio and therefore we think of the listed airports we cover M&A risk is highest here.

Underweight


Fraport AG Frankfurt Airport Services Worldwide (FRAG.DE;FRA GR)

FYE Dec 2013A 2014E 2015E 2016EAdj. EPS FY (€) 2.40 2.64 3.09 3.40EPS FY (€) 2.40 2.64 3.09 3.40Revenue FY (€ mn) 2,561 2,499 2,589 2,684EBITDA FY (€ mn) 880 796 833 872EBIT FY (€ mn) 528 492 528 565EV/EBITDA (x) FY 9.5 10.4 10.1 9.7P/E (x) FY 20.8 18.9 16.2 14.7Net Debt/EBITDA FY 4.4 4.7 4.6 4.5Dividend Yield FY 2.5% 2.6% 2.7% 2.9%Source: Company data, Bloomberg, J.P. Morgan estimates.

Underweight

FRAG.DE,FRA GR

▼

Price: €49.90


Germany


Elodie Rall AC

(44-20) 7134-5911

[email protected]



YTD 1m 3m 12mAbs -8.3% -9.9% -6.5% 5.0%Rel -11.9% -7.6% -8.6% -10.1%

46

50

54

58

€


Price Performance

FRAG.DE share price (€)

MSCI-Eu (rebased)

52



We downgrade our PT to €47

We change our Fraport price target to €47 from €53 earlier. Our new price target is based on a change in our long term growth rate to 1.5% from 2.6% previously. We think this move is justified by the recent Lufthansa (Frankfurt’s main hub carrier) profit warning which in our view reduces the prospect for traffic growth at the airport and the fact that we model both ADP and Vienna Airport with a 1.5% long term traffic growth rate. Our new price target suggests a possible 6% downside from yesterday’s close.


Fraport (Underweight; Price Target: €47.00)

Investment Thesis

Fraport is a major European airports group, which owns and operates the third busiest airport in Europe, Frankfurt (58.7m passengers). In addition, the company owns several airport stakes around the globe (including Antalya and Lima airports). We are concerned by i) weaker than expected performance in retail, ii) poor outlook at the ground handling division, iii) exposure to Russia and iv) The risk of higher capex needs for the construction of Terminal 3 which could drag returns down in the medium term. Our PT is €47.

Valuation

Our July 2015 target price of €47is based on our 50-year DCF valuation. We factor in an economic downturn once every 10 years. Our DCF uses a WACC of 6.97% calculated based on a beta of 0.95 and a risk free rate based on the 10-year German government bond yield, adjusted for implied market levels.


We see a number of risks that may prevent the stock from achieving our rating and price target, including: changes to GDP growth; the strategy, success and seat capacity of Fraport's airline customers (mainly Lufthansa); fluctuation and increase in oil prices; changes in taxation and environmental constraints; consumer confidence impact on retail spend; changes to the German government's holding in Fraport (and German law thereon); changes in bond yield and financing costs; EU initiated regulatory changes; geopolitical events (e.g. diseases, wars) and terrorism; technological change (especially with regard to security procedures); receipt of planning consent for Fraport's expansion plan; construction risk and project management risks.

53



Fraport: Summary of FinancialsProfit and Loss Statement Cash flow statement€ in millions, year end Dec FY12 FY13 FY14E FY15E FY16E € in millions, year end Dec FY12 FY13 FY14E FY15E FY16E

Revenues 2,442 2,561 2,499 2,589 2,684 EBIT 496 528 492 528 565% change Y/Y 3.0% 4.9% (2.4%) 3.6% 3.7% Depreciation & amortization 353 352 304 306 307

EBITDA (basic) 849 880 796 833 872 Change in working capital & Other (38) (87) (2) 15 15% change Y/Y 5.8% 3.7% (9.5%) 4.6% 4.7% Cash flow from operations 553 575 545 605 636

EBITDA Margin (%) 34.8% 34.4% 31.9% 32.2% 32.5%EBIT 496 528 492 528 565 Taxes

% change Y/Y (0.1%) 6.5% (6.8%) 7.1% 7.1% Capex (711) (501) (425) (375) (385)EBIT Margin (%) 20.3% 20.6% 19.7% 20.4% 21.1% Net Interest - - - - -

Net Interest income/(expense) (144) (174) (123) (121) (117) Free cash flow (162) 74 120 230 251Earnings before tax 364 341 374 436 479

% change Y/Y 4.8% (6.4%) 9.7% 16.5% 10.0% Disposals/(purchase) 0 0 0 0 0Tax (charge) (113) (105) (116) (135) (149) Equity raised/(repaid) 2 3 0 0 0

Tax as a % of PBT 30.9% 30.8% 31.0% 31.0% 31.0% Dividends paid (122) (119) (124) (130) (137)Net Income (Reported) 238 221 243 285 313 Other

% change Y/Y (0.9%) (7.2%) 10.1% 17.1% 10.1%Shares Outstanding (Av.m) 92 92 92 92 92 Beginning debt 927 822 605 605 605

EPS (Reported, basic, €) 2.58 2.40 2.64 3.09 3.40 Ending debt 822 605 605 605 605% Change Y/Y (9.7%) (7.2%) 10.1% 17.1% 10.1% DPS (€, declared, gross) 1.25 1.25 1.30 1.37 1.43


Cash and cash equivalent 822 605 605 605 605 EBITDA margin (%) 34.8% 34.4% 31.9% 32.2% 32.5%Accounts Receivables 180 182 184 191 198 Net margin (%) 9.8% 8.6% 9.7% 11.0% 11.7%Inventories 78 75 80 82 85 FCF margin (%) (6.7%) 2.9% 4.8% 8.9% 9.3%

Others 420 441 441 441 441 Sales growth (%) 3.0% 4.9% (2.4%) 3.6% 3.7%Current assets 1,500 1,303 1,309 1,319 1,329 Attributable net profit growth (%) (0.9%) (7.2%) 10.1% 17.1% 10.1%LT investments 743 728 728 728 728 EPS growth (%) (9.7%) (7.2%) 10.1% 17.1% 10.1%Net fixed assets 5,927 5,988 6,046 6,054 6,062 Interest coverage (Adj. EBITDA/Net Interest) (x) 5.9 5.1 6.5 6.9 7.5Other non-current assets 2,175 2,194 1,557 2,319 2,389 Net debt/EBITDA (x) 4.4 4.4 4.7 4.6 4.5Total Assets 9,641 9,523 8,951 9,730 9,818 Sales/assets (x) 0.3 0.3 0.3 0.3 0.3

Liabilities Assets/equity (x) 3.3 3.2 3.0 2.9 2.9ST loans 197 315 315 315 315 ROE 8.3% 7.4% 7.8% 8.8% 9.2%Payables 214 162 153 159 164 ROCE 4.7% 4.9% 4.5% 4.8% 4.9%Others 388 424 424 424 424 ROIC - - - - -Total current liabilities 799 901 892 898 902Long term debt 4,401 4,147 4,039 4,138 4,252

Other liabilities 5,574 5,207 4,525 5,144 5,051Total liabilities 6,692 6,425 5,733 6,358 6,269Shareholders' equity 2,946 3,099 3,218 3,372 3,549BVPS (€) 31.56 33.11 34.40 36.08 37.99


54



Vienna Airport

Traffic near top end of guidance and deleveraging on track

Q1 demonstrated continued margin improvement. Despite suffering from a fall in winter related revenues due to mild weather, Vienna Airport reported strong Q1 results with EBITDA of €53.2m coming in inline with our estimates despite the negative revenue effect being larger than we had anticipated (reported revenues of €139.5m were 3% below our estimates). Management in particular struck a confident tone on the call stating that the majority of cost savings achieved in Q1 were ‘sustainable’. See our note: EBITDA margins improve despite weaker revenues for more details.

Deleveraging story continues. FCF has been sequentially improving at Vienna Airport and the company continues to delever. The group ended Q1 with net debtof €604.9m, and stated (in line with market expectations) that they now anticipate achieving their previous 2016 target to reach 2.5x net debt/EBITDA this year. We expect the airport to end the year with net debt of €515m, or 2.0x netdebt/EBITDA. As flagged in our previous publications on Vienna Airport, we continue to like the FCF profile of the company and identify the potential for higher dividends this facilitates.

Guidance remains but we should see upgrades. Management made no change to their 2014 guidance at the Q1 results, but we would be looking for upgrades at H1 given the strong traffic performance YTD. Passenger traffic was up 2.9% YTD as of the end of June, towards the top end of management guidance for 1-3% growth on 2013. We think the entry of new airlines into the airport and the opening of new routes will continue to contribute to traffic growth throughout the rest of the year. We increase our 2014 traffic forecast to 3.5% from 2.5% previously.

We upgrade our PT to €72. We increase our 12 month DCF derived price target to €72, providing potential 3% upside to today’s share price, justifying our Neutral rating on the stock.

Neutral


Flughafen Wien AG (VIEV.VI;FLU AV)


2014E(Curr)

2015E(Prev)

2015E(Curr)

2016E

Adj. EPS FY (€) 3.47 3.94 4.12 4.53 4.74 5.12EPS FY (€) 3.47 3.94 4.12 4.53 4.74 5.12Revenue FY (€ mn) 646 661 665 675 680 694EBITDA FY (€ mn) 237 248 256 259 268 276EBIT FY (€ mn) 112 124 128 133 139 144EV/EBITDA (x) FY 8.8 7.2 7.7 6.4 6.9 6.3P/E (x) FY 20.0 17.6 16.9 15.3 14.6 13.5Net Debt/EBITDA FY 2.7 2.2 2.0 1.6 1.5 1.0Dividend Yield FY 1.9% 2.3% 2.3% 2.7% 2.9% 3.2%Source: Company data, Bloomberg, J.P. Morgan estimates.

Neutral

VIEV.VI,FLU AV

▲

Price: €69.35


Austria


Elodie Rall AC

(44-20) 7134-5911

[email protected]



YTD 1m 3m 12mAbs 13.9% 0.0% -3.5% 57.7%Rel 10.3% 2.3% -5.6% 41.7%

40

50

60

70

€


Price Performance

VIEV.VI share price (€)

MSCI-Eu (rebased)



55



Changes to estimates, we upgrade EPS 4.6%

In light of the better than expected traffic this year, and a positive outlook for H2 with regard to capacity additions and new entrants, we upgrade our 2014 traffic estimate to 3.5%, above management guidance for growth of between 2 and 3%.

We factor in EBITDA margin improvements for 2014 as we take account for the lower consumables used in weather related de-icing activities in Q1 as well as the 'sustainable’ cost reductions that led to a 200bps margin improvement on the first three months of last year. We now forecast €256m EBITDA for 2014 at a 38.6% margin.

We upgrade 2014 EPS by 4.6% to €4.12, driven by the changes we detail above.

Upgrade price target to €72

We upgrade out 12 month Vienna Airport price target to €72 from €63 previously. This is driven by the changes to our traffic estimates and margin assumptions. We also adjust our long term retail growth assumption from 0.5% previously to 0.8%, justified by the better execution on retail and the recent opening of the Skylink terminal.

Vienna Airport currently trades on 7.7x 2014e EV/EBITDA. We do not find this valuation stretched, given where the stock is trading in comparison to history and to the sector given the rerating of peers recently. However, with only 3% potential upside to our price target we maintain our Neutral rating.


Vienna Airport (Neutral; Price Target: €72.00)

Investment Thesis

Vienna Airport is owner and operator of Vienna's international airport, which served 22m passengers in 2013. Despite the impact of airline capacity cuts in 2013, we see upside risks to management guidance for traffic growth of 2-3% this year, and forecast 3.5%. Meanwhile the group’s strong grasp of cost and cash flow should enable dividend increase in our opinion. Valuation multiples look undemanding.

Valuation

Our 12-month target price of €72 (increased from €63) is based on our 50-year DCF-based valuation. We factor in an economic downturn once every 10 years. Our DCF uses a WACC of 7.26% based on a beta of 0.85 and a risk-free rate based on the 10-year Austrian government bond yield, adjusted for implied market levels.


We believe the key risks that could keep our rating and target price from being achieved include the following: changes to GDP growth forecasts; fluctuations in oil prices; geopolitical events (e.g. diseases, wars) and terrorism; a decision by one or both of the state shareholders to reduce their stake; consumer confidence’s impact on retail spend; changes to the nature and method of Vienna Airport's regulation; other socio-political risks; changes in taxation and environmental constraints; seat capacity changes at Austrian Airlines; better-than-expected outcome from the negotiations with Lufthansa regarding Vienna Airport's expansion plans and fee remuneration for the construction of a new runway; construction risk and project management risks (terminal, new runway); goodwill risk on external airport (or other) investments; changes in bond yield and financing costs; competitive threats such as Frankfurt opening a new runway or Munich extending its terminals.

56



Vienna Airport: Summary of FinancialsProfit and Loss Statement Cash flow statement€ in millions, year end Dec FY12 FY13 FY14E FY15E FY16E € in millions, year end Dec FY12 FY13 FY14E FY15E FY16E

Revenues 631 646 665 680 694 EBIT 108 112 128 139 144% change Y/Y 4.8% 2.2% 3.0% 2.3% 2.1% Depreciation & amortization 110 129 132 133 136

EBITDA (basic) 221 237 256 268 276 Change in working capital & Other 138 183 216 184 187% change Y/Y 17.1% 7.2% 8.0% 4.4% 3.2% Cash flow from operations 360 421 472 451 463EBITDA Margin (%) 35.1% 36.8% 38.6% 39.4% 39.8%

EBIT 108 112 128 139 144 Taxes (9) (16) (29) (32) (34)% change Y/Y 60.8% 3.8% 14.6% 8.2% 4.0% Capex (127) (86) (110) (90) (90)EBIT Margin (%) 17.1% 17.4% 19.3% 20.4% 20.8% Net Interest (22) (21) (17) (12) (8)

Net Interest income/(expense) (14) (15) (12) (7) (2) Free cash flow 233 334 362 361 373Earnings before tax 94 97 116 132 142% change Y/Y 108.2% 3.4% 19.6% 13.5% 8.1% Disposals/(purchase) 0 0 0 0 0Tax (charge) (21) (24) (29) (32) (34) Equity raised/(repaid) 0 0 0 0 0

Tax as a % of PBT 22.8% 24.2% 25.0% 24.0% 24.0% Dividends paid (21) (22) (27) (34) (42)Net Income (Reported) 72 73 86 99 108 Other (22) (21) (17) (12) (8)

% change Y/Y 127.8% 1.4% 18.6% 15.1% 8.1%Shares Outstanding (Av.m) 21 21 21 21 21 Beginning debt 752 720 633 515 399EPS (Reported, basic, €) 3.42 3.47 4.12 4.74 5.12 Ending debt 720 633 515 399 0

% Change Y/Y 127.8% 1.4% 18.6% 15.1% 8.1% DPS (€, declared, gross) 1.05 1.30 1.60 2.00 2.20


Cash and cash equivalent 70 24 24 24 24 EBITDA margin (%) 35.1% 36.8% 38.6% 39.4% 39.8%Accounts Receivables 43 68 55 56 57 Net margin (%) 11.4% 11.3% 13.0% 14.6% 15.5%Inventories 4 4 5 6 6 FCF margin (%) 36.9% 51.8% 54.5% 53.1% 53.7%Others 33 0 0 0 0 Sales growth (%) 4.8% 2.2% 3.0% 2.3% 2.1%Current assets 150 96 84 85 87 Attributable net profit growth (%) 127.8% 1.4% 18.6% 15.1% 8.1%LT investments 99 102 102 102 102 EPS growth (%) 127.8% 1.4% 18.6% 15.1% 8.1%Net fixed assets 1,678 1,622 1,604 1,565 1,523 Interest coverage (Adj. EBITDA/Net Interest) (x) 15.5 15.7 20.7 36.8 129.6Other non-current assets 234 236 233 231 228 Net debt/EBITDA (x) 3.3 2.7 2.0 1.5 1.0Total Assets 2,062 1,954 1,921 1,881 1,838 Sales/assets (x) 0.3 0.3 0.3 0.4 0.4Liabilities Assets/equity (x) 2.5 2.3 2.1 1.9 1.8ST loans 151 106 106 106 106 ROE 8.7% 8.3% 9.3% 10.1% 10.3%Payables 70 50 70 71 72 ROCE 5.0% 5.4% 6.4% 7.3% 7.9%Others 155 144 157 173 185 ROIC - - - - -Total current liabilities 376 300 333 349 363Long term debt 639 552 433 317 197Other liabilities 701 616 498 383 263Total liabilities 1,210 1,048 962 865 760Shareholders' equity 852 906 959 1,016 1,077BVPS (€) 40.55 43.14 45.65 48.39 51.31


57



Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention.

Important Disclosures

Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in Abertis, Atlantia, Vinci, Eiffage, Aeroports de Paris (ADP), Fraport, Vienna Airport.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Abertis, Atlantia, Vinci,Eiffage, Aeroports de Paris (ADP), Fraport.

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Vinci.

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: Abertis, Vinci.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Abertis, Aeroports de Paris (ADP), Fraport.

Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Vinci.

J.P. Morgan is acting as a financial advisor to Aeroports de Paris on the acquisition of Tepe Insaat Sanayi A.S. and Akfen Holding A.S. stakes in TAV Airports and in TAV Construction. J.P. Morgan does not currently have a recommendation for Aeroports de Paris. This report is not intended to serve as an endorsement of the proposed transaction or to provide voting advice or to result in or recommend any course of action by a security holder.

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail [email protected].

Date Rating Share Price (€)

Price Target (€)

07-Jun-07 OW 20.17 -

03-Aug-07 OW 19.25 32.00

08-May-08 OW 19.52 --

18-Mar-10 N 15.03 16.40

22-Feb-11 N 14.42 16.90

25-Feb-11 N 14.34 16.50

27-Jun-11 N 14.85 15.70

12-Jan-12 OW 12.86 14.80

06-Mar-12 OW 12.56 15.20

26-Sep-12 OW 11.50 15.50

18-Jun-13 N 13.83 14.00

13-Jan-14 N 16.60 16.00

0

8

16

24

32

40

Price(€)

Sep06

Mar08

Sep09

Mar11

Sep12

Mar14

Abertis (ABE.MC, ABE SM) Price Chart

OW €32 N €16.5 OW €15.2

OW OW N €16.4 N €16.9N €15.7OW €14.8OW €15.5 N €14 N €16

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Break in coverage May 08, 2008 - Mar 18, 2010.

mailto:[email protected]


https://jpmm.com/research/disclosures

58




Price Target (€)

30-Mar-07 UW 24.00 19.19

29-Aug-07 UW 24.20 19.21

10-Sep-07 UW 23.62 21.35

21-Jan-08 UW 24.35 23.98

01-Mar-10 OW 17.36 --

18-Mar-10 OW 17.26 24.00

22-Feb-11 OW 16.47 20.00

14-Mar-11 OW 16.08 21.00

27-Jun-11 OW 14.39 20.00

22-Jul-11 OW 13.49 17.00

12-Jan-12 N 11.57 13.80

30-Mar-12 N 12.37 14.20

13-May-13 N 14.28 15.30

02-Dec-13 OW 16.13 19.00

13-Jan-14 OW 16.83 20.00

14-Mar-14 OW 17.94 21.00

23-May-14 OW 18.40 23.00

30-May-14 OW 19.84 24.00


Price Target (€)

28-Feb-07 OW 53.20 133.00

17-May-07 OW 59.02 70.00

24-Jul-07 OW 55.46 73.00

05-Sep-07 OW 52.44 74.00

15-Nov-07 OW 55.00 77.00

01-Mar-10 OW 38.45 --

18-Mar-10 OW 43.09 52.00

29-Nov-10 OW 39.18 56.00

03-Mar-11 OW 44.28 57.00

09-Aug-11 OW 33.20 56.00

13-Sep-11 OW 31.42 55.00

16-Dec-11 OW 31.58 54.00

17-Sep-12 OW 36.24 49.00

01-May-13 OW 37.24 44.00

17-Sep-13 OW 42.01 48.00

10-Oct-13 OW 44.01 50.00

24-Jan-14 OW 47.78 54.00

07-Feb-14 OW 50.60 57.00

28-Apr-14 OW 53.73 59.00

0

10

20

30

40

50

Price(€)

Feb07

Aug08

Feb10

Aug11

Feb13

Atlantia (ATL.MI, ATL IM) Price Chart

OW €21

UW €21.353 OW €24 OW €21OW €17 N €14.2 OW €20OW €24

UW €19.187UW €19.214UW €23.976 OW OW €20OW €20N €13.8 N €15.3OW €19OW €23


Break in coverage Mar 01, 2010 - Mar 18, 2010.

0

18

36

54

72

90

108

Price(€)

Feb07

Aug08

Feb10

Aug11

Feb13

Vinci (SGEF.PA, DG FP) Price Chart

OW €73 OW €54 OW €59

OW €70OW €77 OW €52 OW €57OW €55 OW €50OW €57

OW €133OW €74 OW OW €56 OW €56 OW €49 OW €44OW €48OW €54



59




Price Target (€)

12-Mar-07 OW 74.71 82.00

01-Mar-10 UW 33.60 --

18-Mar-10 UW 37.04 40.00

02-Mar-11 UW 42.74 46.00

13-Sep-11 UW 22.78 35.00

31-Jan-12 N 23.46 30.00

02-Mar-12 N 30.48 34.00

30-Aug-12 N 22.74 29.00

01-May-13 N 34.20 38.00

24-Jan-14 N 42.72 47.00

14-Apr-14 N 52.89 58.00


Price Target (€)

06-May-11 OW 64.52 75.00

11-Oct-11 N 57.15 70.00

19-Jun-12 N 58.58 65.00

27-Nov-12 UW 59.00 58.00

09-Aug-13 N 78.44 82.50

01-Apr-14 N 90.51 96.00

0

39

78

117

156

195

Price(€)

Sep06

Mar08

Sep09

Mar11

Sep12

Mar14

Eiffage (FOUG.PA, FGR FP) Price Chart

UW €40 N €34 N €58

OW €82 UW UW €46UW €35N €30 N €29 N €38 N €47



0

23

46

69

92

115

138

161

Price(€)

Nov10

Aug11

May12

Feb13

Nov13

Aeroports de Paris (ADP) (ADP.PA, ADP FP) Price Chart

OW €75 N €70 N €65 UW €58 N €82.5 N €96


Initiated coverage May 06, 2011.

60




Price Target (€)

11-Oct-11 N 45.34 54.00

19-Jun-12 OW 40.73 53.00

27-Nov-12 OW 42.54 51.00

09-Aug-13 UW 49.48 50.00

01-Apr-14 UW 54.17 53.00


Price Target (€)

30-Nov-07 N 77.10 80.00

05-Jun-08 N 74.58 83.50

30-Sep-08 N 42.59 49.50

11-Dec-08 N 29.10 35.60

17-Feb-09 UW 25.39 25.40

16-Apr-09 UW 23.60 25.60

28-May-09 UW 26.50 23.40

20-Aug-09 UW 29.66 31.70

19-Nov-09 UW 37.07 31.50

12-Feb-10 UW 34.00 36.20

26-Mar-10 UW 35.80 37.10

21-May-10 UW 38.90 41.70

15-Jul-10 UW 43.41 41.40

26-Jul-10 UW 43.90 --

06-May-11 UW 39.04 42.50

11-Oct-11 UW 31.82 34.00

25-Nov-11 UW 26.82 32.00

19-Jun-12 N 30.65 35.50

27-Nov-12 N 37.80 40.00

09-Aug-13 N 48.00 51.00

29-Aug-13 N 49.41 55.00

31-Jan-14 N 59.38 63.00

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated

Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is

0

13

26

39

52

65

78

91

Price(€)

Jun11

Sep11

Dec11

Mar12

Jun12

Sep12

Dec12

Mar13

Jun13

Sep13

Dec13

Mar14

Jun14

Fraport (FRAG.DE, FRA GR) Price Chart

N €54 OW €53 OW €51 UW €50 UW €53


Initiated coverage Oct 11, 2011.

0

24

48

72

96

120

144

Price(€)

Sep06

Mar08

Sep09

Mar11

Sep12

Mar14

Vienna Airport (VIEV.VI, FLU AV) Price Chart

UW €25.4UW €31.7UW €37.1UW

N €35.6UW €23.4UW €36.2UW €41.4 UW €32 N €55

N €80N €83.5N €49.5UW €25.6UW €31.5UW €41.7 UW €42.5UW €34 N €35.5N €40 N €51 N €63


Break in coverage Jul 26, 2010 - May 06, 2011.

61



compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com.

Coverage Universe: Rall, Elodie: Abertis (ABE.MC), Aeroports de Paris (ADP) (ADP.PA), Atlantia (ATL.MI), Eiffage (FOUG.PA), Fraport (FRAG.DE), Holcim Ltd (HOLN.VX), Lafarge (LAFP.PA), Royal Vopak (VOPA.AS), Tarkett (TKTT.PA), Vienna Airport (VIEV.VI), Vinci (SGEF.PA), Zurich Airport (FHZN.S)

J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2014

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 45% 43% 11%IB clients* 55% 49% 34%

JPMS Equity Research Coverage 46% 47% 7%IB clients* 75% 66% 54%

*Percentage of investment banking clients in each rating category.For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P. Morgan representative, or email [email protected].

Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.

Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.

Other Disclosures

J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries.

All research reports made available to clients are simultaneously available on our client website, J.P. Morgan Markets. Not all research content is redistributed, e-mailed or made available to third-party aggregators. For all research reports available on a particular stock, please contact your sales representative.

Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit the OCC's website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf

Legal Entities Disclosures U.S.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC. U.K.: JPMorgan Chase N.A., London Branch, is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from J.P. Morgan on request. J.P. Morgan Securities plc (JPMS plc) is a member of the London Stock Exchange and is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England & Wales No. 2711006. Registered Office 25 Bank Street, London, E14 5JP. South Africa: J.P. Morgan Equities South Africa Proprietary Limited is a member of the Johannesburg Securities Exchange and is regulated by the Financial Services Board. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong and/or J.P. Morgan Broking (Hong Kong) Limited (CE number AAB027) is regulated by the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (JPMAL) (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (JPMSAL) (ABN 61 003 245 234/AFS Licence No: 238066) is regulated by ASIC and is a Market, Clearing and Settlement Participant of ASX Limited and CHI-X. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited (Corporate Identity Number - U67120MH1992FTC068724), having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz - East, Mumbai – 400098, is a member of the National Stock Exchange of India Limited (SEBI Registration Number - INB 230675231/INF 230675231/INE 230675231) and Bombay Stock Exchange Limited (SEBI Registration Number - INB 010675237/INF 010675237) and is regulated by Securities and Exchange Board of India. Telephone: 91-22-6157 3000, Facsimile: 91-22-6157 3990 and Website: www.jpmipl.com. For non local research reports, this material is not distributed in India by J.P. Morgan India Private Limited. Thailand: This material is issued and distributed in Thailand by JPMorgan Securities (Thailand) Ltd., which is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and

http://www.jpmipl.com/

http://www.optionsclearing.com/publications/risks/riskstoc.pdf


http://www.jpmorganmarkets.com/

62



Exchange Commission and its registered address is 3rd Floor, 20 North Sathorn Road, Silom, Bangrak, Bangkok 10500. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the OJK a.k.a. BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a Trading Participant of the Philippine Stock Exchange and a member of the Securities Clearing Corporation of the Philippines and the Securities Investor Protection Fund. It is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by or through J.P. Morgan Securities Singapore Private Limited (JPMSS) [MCI (P) 199/03/2014 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. This material is provided in Singapore only to accredited investors, expert investors and institutional investors, as defined in Section 4A of the Securities and Futures Act, Cap. 289. Recipients of this document are to contact JPMSS or JPMCB Singapore in respect of any matters arising from, or in connection with, the document. Japan: JPMorgan Securities Japan Co., Ltd. is regulated by the Financial Services Agency in Japan. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.

Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMS plc. Investment research issued by JPMS plc has been prepared in accordance with JPMS plc's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. This material does not take into account the specific investment objectives, financial situation or particular needs of the recipient. The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the term "wholesale client" has the meaning given in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities plc, Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan, Type II Financial Instruments Firms Association and Japan Investment Advisers Association. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules. Brazil: Ombudsman J.P. Morgan: 0800-7700847 / [email protected].

General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own

63



independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

"Other Disclosures" last revised June 21, 2014.

Copyright 2014 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P

Documents

JPM European Infrastructure Report