Promotora y Operadora de Infraestructura PINFRA*
January 16, 2010 - 2:48pm EST by
flubber926
2010 2011
Price: 29.00 EPS $1.70 $1.90
Shares Out. (in M): 372 P/E 17.1x 15.3x
Market Cap (in $M): 0 P/FCF 18.0x 15.0x
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 8.4x 7.3x

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Description

 

History and Evolution of the Company:

 PINFRA is the resulting company from the reorganization of Grupo Tribasa which filed for bankruptcy after the Mexican mid 90's crisis and emerged from bankruptcy in 2003. The company came from being a cyclic business (as it was focused on construction) and a highly leveraged company; to a stable and predictable FCF generating business with a strong cash position.

This stability and predictable future cash flows come from PINFRA's operating segments (Asphalt Plant, Seaport Concession and its Toll Road operations), highlighting that it is a totally different business mix compared to what Tribasa use to manage, ie. PINFRA is now focused on the operation of toll roads rather than the construction thereof, PINFRA is still a construction company although they prefer to be in the high-margin business and leave the construction risk to somebody else.

 Today PINFRA is one of the largest highway concession companies in Mexico and has a presence in construction, asphalt production, seaport concessions, and other types of infrastructure.

1990's

2003-2004

2005-to date

Construction Company

 

Infrastructure Operator

Highly Leveraged

Company

Strong Cash Position

Cyclic Business

Restructure

Predictable and stable FCF Growth

Low Margin Business

 

High Margins (EBITDA % over 60's)

Low Returns on Capital

 

Focus on High ROIC Projects (min. IRR 13%)

 PINFRA Today:

Asphalt Plant

50 years of Proven Reserves

Altamira Port (187,675 TEUS 2009)

27 year concession

Toll Road Operator (14)

22 years concession (Avg.)

Toll Road Concessions (4)

25 years concession (Avg.)

Highways Construction (3)

30 years concession

Securitized Toll Roads (6)

10 years of Residual Value *

Cash

MXN $1,770 M

 * Once the securitized debt of these roads is settled, PINFRA will take over its cash flows for the remaining years of concession.

The Business:

Business segments

PINFRA's businesses are easy to understand, constant cash generators, with a high-margin and they are predictable by nature as they mostly rely in concessions and natural reserves. Furthermore, PINFRA's businesses have a significant growth potential on going forward: 

1. Toll road management company (EBITDA: MXN $198 M; toll road operations margin: 51%; non securitized toll roads margin: ~70% )

Operates 14 toll roads in Mexico (3 under construction) and has grown in Average Annual Daily Traffic from 72,342 vehicles in 2003 to 124,008 in 2009 (CAGR 9.4%).

PINFRA is the second toll road operator in Mexico after the Federal Government in terms of total traffic.

Seven of these toll road concessions have been securitized by PINFRA but the company still manages the maintenance and operations thereof; therefore the company still charges an operating fee year after year until the concessions expire and that is in itself a highly lucrative business (51% EBITDA margin).

The company has the option to "pre-pay" the debt of these securitizations and keep the whole business for the remaining years of concession.

One of the highly misunderstood "hidden" values that PINFRA holds is the residual value of these securitized toll roads. This is precisely the future cash flows that the company will get from the remaining concession years from each toll road, after the repayment of the securitized debt (go to Residual Value of securitized toll roads for further details).

2. Asphalt plant (EBITDA TTM: MXN $186 M; margin: 27.6%[1])

This stable business is closely tied to the infrastructure development in Mexico City and its surroundings

Over the last 6 years its revenues have grown to a MXN $673 M level, at a 15% CAGR growth pace, and nowadays it has a capacity of 500 Tons per production hr. 

The asphalt business of the company should continue benefiting from the high need of pavement and infrastructure maintenance and development of Mexico City.

3. Seaport: Altamira Port (EBITDA TTM: MXN $123 M; margin: 35%)

PINFRA owns one of only two terminals in the Altamira port. Altamira is a federal-granted concession that expires in 2036; such concession is extendable for an additional time period of 20 years.

Container growth has increased from 147,627 TEUS[2] in 2003 to over 187,675 TEUS in 2009 (CAGR: 4.1%).

Thesis:

1. Great business with stable and predictable earnings and growth.

  • Predictable and stable Revenue 6.5% CAGR 2004-09,
  • EBITDA 10.1% CAGR 2004-09
  • and FCF 32.8% CAGR 2004-09
  • Highly Profitable: EBITDA Margin: 62.6% vs. 16.5% sector average
  • Highly misunderstood "Pristine" Balance Sheet: Net Cash position of MXN $1,770 M

 

FCF

2004

117

2005

234

2006

245

2007

397

2008

564

2009 TTM

599

2010e

728

2011e

1,231

 

PINFRA's FCF is expected to double in the next 2 years, as the company should finish pre-paying the ARMEC[3] securitization during the first half of the year. We expect these 2 highways to generate a sum close to MXN $500 M of FCF in the first year after the debt settlement (2Q10-2Q11)[4].

2. Management

  • BV per share (MXN $21.3) 21% CARG 2004-09
  • Share repurchase of the first 3 quarters of 2009 of MXN $776 M or 7.2% of the current market cap
  • Management states that a minimum IRR of 13% is required for any new project
  • Administrative costs represent 1.1% of revenues (3 to 4 times below its comps)

 

Administrative Costs/Revenues

2004

8.1%

2005

5.8%

2006

5.0%

2007

2.1%

2008

1.5%

2009 TTM

1.1%

 

3.Price

PINFRA's businesses are easy to understand; they generate a lot of cash year after year and are predictable by nature; however, nowadays, it is possible to buy the company at a significant discount:

  • Significant multiple discount vs. sector
  • 44% upside assuming 10% FCF Yield (FCF/EV)
  • Furthermore, it isn't built in our Price Target, the highly probable scenario that PINFRA could win new concessions, increasing the value of its portfolio.

 What is the market misunderstanding?

Balance Sheet:

Debt

The company has zero corporate debt. As the entire debt comes from the highway securitizations and PINFRA doesn't own such assets or its cash flows, to date, and the debt is assumed by each toll road securitizations. It is important to consider that the cash flows from each toll road are used for the debt repayment of the securitization. 

 

Securitization

Net Debt (MXN $M)

Estimated pre-payment date

Concession's length

TTM FCF (MXN $ M)

ARMEC

$403

2010

2021

$451

CONCECB

$454

2015

2036

$85

CPACCB

$1,419

2016

2023

$287

TENANCB

$682

2020

2036

$71

PADEIM

$5,358

2023

2030

$686

ZONALCB

$1,663

2034

2035

$70

Net Debt = debt - restricted cash (securitization trust cash position)

Cash Position

In the 3Q09 PINFRA held a total cash position of MXN $3.97 B.

This cash position is divided in:

  • Corporate Cash: The Company's real cash position (TTM MXN $1.84 B).
  • Restricted Cash: Cash from the securitized Toll Roads (MXN $2.13 B). This could be used for road maintenance or interest payments (if needed). Once the securitized debt is settled, the company will get the remaining cash.

Residual Value of Securitized Toll Roads:

This is the future cash flow that the company will get for the remaining years of concession, after repayment of each securitized debt.

Currently PINFRA has 6 securitizations of Toll Roads one of which includes 2 roads (ARMEC)

Residual Value Estimate:

Assuming an average traffic growth of 2.6% in PINFRA's securitized highways (in line with GBM analysts; vs. 3% company's base case) and an average WACC of 11%, we got to a Residual Value estimate of MXN $6.56 B.

Excluding ARMEC (which securitization is to be settled in the short run) the remaining 5 Toll Roads Residual Value estimate would be around MXN $2.8 B vs. company's base case of MXN $3 B

Securitization

Residuals (MXN $M)

Estimated pre-payment date

Concession's length

ARMEC

$3,772

2010

2021

CONCECB

$180

2015

2036

CPACCB

$980

2016

2023

TENANCB

$1,044

2020

2036

PADEIM

$586

2023

2030

ZONALCB

-

2034

2035

TOTAL

$6,562

 

 

Total ex ARMEC

$2,790

 

 

Valuation:

How is the market valuing PINFRA?

Price

$29

Shares Out. (Mill)

372

Mkt. Cap

$10,862

 

 

Securitized Toll Roads' DEBT

$11,800

Cash

$2,050

EV

$20,612

EBITDA

$2,217

 

 

EV/EBITDA

9.3x

PINFRA's real intrinsic value (incl. residual value):

Mkt. Cap

$10,862.4

 

 

Securitized Toll Roads' DEBT

x

 

 

Cash

$2,050

 

 

 

 

 

 

 

Residual Value Assumptions

Residual Value of Securitized Toll Roads

$2,000

$2,500

$2,800

EV

$6,812

$6,312

$6,012

EBITDA

$1,193

$1,193

$1,193

 

 

 

 

EV/EBITDA

5.7x

5.3x

5.0x

Data: 12M after ARMEC repayment (may10).

EBITDA: excludes the securitized toll road EBITDA; includes ARMEC's EBITDA as we already subtracted its residual value.

Figures in MXN $M

 

Comparative 

PINFRA

Sector Average

EBITDA Margin

62.6%

16.5%

EV/EBITDA

5.0x - 9.3x

18.0x

 

FCF:

Mkt. Cap

$10,862

Cash

$1,770

Residual Value of Securitized Toll Roads

$2,000

Operating Business EV

$7,092

FCF

$1,193

FCF Yield to current value

16.8%

                            FCF TTM from May 2010

  • Assuming a 10% FCF Yield
  • o Price Target MXN $42
  • o Upside: 44%

Business Plan 2009-2015:

 

Initial Cash Position (e)

FCF (e)

New Business Investment (e)

2009

$1,730

$599

$279

2010

$2,050

$728

$360

2011

$2,418

$1,231

$1,393

2012

$2,256

$1,356

$92

2013

$3,529

$1,747

?

2014

$5,276

$1,979

?

2015

$7,255

PINFRA Current Mkt. Cap

$10,862

Considering the company's initial cash position and the expected Cash Flows from current projects, and subtracting the expected investment; we concluded that as of 2015, the investor shall get almost for free the remaining, roughly 17, years of concession of these same businesses.

Note on the industry:

It is worth noting that it is not built in our Price Target, the highly probable scenario that PINFRA could be granted with new concessions, increasing the value of its portfolio.

The following thoughts must be consider in order to obtain some perspective of the Mexican infrastructure industry's potential:

Considering that Mexico's GDP could expand over 3.0% on 2010, according to the Ministry of Finance, this year's investment in infrastructure should represent 5.0% of the country's GDP.

Furthermore, seeing the advance that the National Infrastructure Program (2007-2012) has had so far in the last three years, we can observe that roughly US $140 B or 60% of the investment goal established by the federal government still remains to be accomplished, and considering that the economic outlook has improved, it is more likely that a significant progress will occur during and as of 2010. 

US $B

PNI 2007-2012

Advance 2007-2009e

% of Advance

Highways

26.49

10.79

40.7%

Railroads

4.52

2.05

45.4%

Ports

6.55

1.89

28.9%

Airports

5.45

0.82

15.0%

Telecommunications

26.12

7.77

29.7%

Water, Sewerage and Flood Control

18.64

7.7

41.3%

Electricity

35.07

11.99

34.2%

Hydrocarbons

110.85

51.17

46.2%

Total

233.69

94.18

40.3%

 

 


 

[1] Includes PINFRA's construction business. The asphalt business EBITDA margin is ~ 37%.

[2] Twenty-foot equivalent unit

[3] This is the only of the 6 securitizations that includes 2 Highways: Armería-Manzanillo Ecatepec-Pirámides.

[4] ARMEC TTM FCF MXN $451 M

 

Catalyst

the repayment of ARMEC securitization will significantly improve the company's cash generation.

the company could be granted with new concessions as the PNI (National Infrastructure Program) advances in the following years

    sort by    

    Description

     

    History and Evolution of the Company:

     PINFRA is the resulting company from the reorganization of Grupo Tribasa which filed for bankruptcy after the Mexican mid 90's crisis and emerged from bankruptcy in 2003. The company came from being a cyclic business (as it was focused on construction) and a highly leveraged company; to a stable and predictable FCF generating business with a strong cash position.

    This stability and predictable future cash flows come from PINFRA's operating segments (Asphalt Plant, Seaport Concession and its Toll Road operations), highlighting that it is a totally different business mix compared to what Tribasa use to manage, ie. PINFRA is now focused on the operation of toll roads rather than the construction thereof, PINFRA is still a construction company although they prefer to be in the high-margin business and leave the construction risk to somebody else.

     Today PINFRA is one of the largest highway concession companies in Mexico and has a presence in construction, asphalt production, seaport concessions, and other types of infrastructure.

    1990's

    2003-2004

    2005-to date

    Construction Company

     

    Infrastructure Operator

    Highly Leveraged

    Company

    Strong Cash Position

    Cyclic Business

    Restructure

    Predictable and stable FCF Growth

    Low Margin Business

     

    High Margins (EBITDA % over 60's)

    Low Returns on Capital

     

    Focus on High ROIC Projects (min. IRR 13%)

     PINFRA Today:

    Asphalt Plant

    50 years of Proven Reserves

    Altamira Port (187,675 TEUS 2009)

    27 year concession

    Toll Road Operator (14)

    22 years concession (Avg.)

    Toll Road Concessions (4)

    25 years concession (Avg.)

    Highways Construction (3)

    30 years concession

    Securitized Toll Roads (6)

    10 years of Residual Value *

    Cash

    MXN $1,770 M

     * Once the securitized debt of these roads is settled, PINFRA will take over its cash flows for the remaining years of concession.

    The Business:

    Business segments

    PINFRA's businesses are easy to understand, constant cash generators, with a high-margin and they are predictable by nature as they mostly rely in concessions and natural reserves. Furthermore, PINFRA's businesses have a significant growth potential on going forward: 

    1. Toll road management company (EBITDA: MXN $198 M; toll road operations margin: 51%; non securitized toll roads margin: ~70% )

    Operates 14 toll roads in Mexico (3 under construction) and has grown in Average Annual Daily Traffic from 72,342 vehicles in 2003 to 124,008 in 2009 (CAGR 9.4%).

    PINFRA is the second toll road operator in Mexico after the Federal Government in terms of total traffic.

    Seven of these toll road concessions have been securitized by PINFRA but the company still manages the maintenance and operations thereof; therefore the company still charges an operating fee year after year until the concessions expire and that is in itself a highly lucrative business (51% EBITDA margin).

    The company has the option to "pre-pay" the debt of these securitizations and keep the whole business for the remaining years of concession.

    One of the highly misunderstood "hidden" values that PINFRA holds is the residual value of these securitized toll roads. This is precisely the future cash flows that the company will get from the remaining concession years from each toll road, after the repayment of the securitized debt (go to Residual Value of securitized toll roads for further details).

    2. Asphalt plant (EBITDA TTM: MXN $186 M; margin: 27.6%[1])

    This stable business is closely tied to the infrastructure development in Mexico City and its surroundings

    Over the last 6 years its revenues have grown to a MXN $673 M level, at a 15% CAGR growth pace, and nowadays it has a capacity of 500 Tons per production hr. 

    The asphalt business of the company should continue benefiting from the high need of pavement and infrastructure maintenance and development of Mexico City.

    3. Seaport: Altamira Port (EBITDA TTM: MXN $123 M; margin: 35%)

    PINFRA owns one of only two terminals in the Altamira port. Altamira is a federal-granted concession that expires in 2036; such concession is extendable for an additional time period of 20 years.

    Container growth has increased from 147,627 TEUS[2] in 2003 to over 187,675 TEUS in 2009 (CAGR: 4.1%).

    Thesis:

    1. Great business with stable and predictable earnings and growth.

     

    FCF

    2004

    117

    2005

    234

    2006

    245

    2007

    397

    2008

    564

    2009 TTM

    599

    2010e

    728

    2011e

    1,231

     

    PINFRA's FCF is expected to double in the next 2 years, as the company should finish pre-paying the ARMEC[3] securitization during the first half of the year. We expect these 2 highways to generate a sum close to MXN $500 M of FCF in the first year after the debt settlement (2Q10-2Q11)[4].

    2. Management

     

    Administrative Costs/Revenues

    2004

    8.1%

    2005

    5.8%

    2006

    5.0%

    2007

    2.1%

    2008

    1.5%

    2009 TTM

    1.1%

     

    3.Price

    PINFRA's businesses are easy to understand; they generate a lot of cash year after year and are predictable by nature; however, nowadays, it is possible to buy the company at a significant discount:

     What is the market misunderstanding?

    Balance Sheet:

    Debt

    The company has zero corporate debt. As the entire debt comes from the highway securitizations and PINFRA doesn't own such assets or its cash flows, to date, and the debt is assumed by each toll road securitizations. It is important to consider that the cash flows from each toll road are used for the debt repayment of the securitization. 

     

    Securitization

    Net Debt (MXN $M)

    Estimated pre-payment date

    Concession's length

    TTM FCF (MXN $ M)

    ARMEC

    $403

    2010

    2021

    $451

    CONCECB

    $454

    2015

    2036

    $85

    CPACCB

    $1,419

    2016

    2023

    $287

    TENANCB

    $682

    2020

    2036

    $71

    PADEIM

    $5,358

    2023

    2030

    $686

    ZONALCB

    $1,663

    2034

    2035

    $70

    Net Debt = debt - restricted cash (securitization trust cash position)

    Cash Position

    In the 3Q09 PINFRA held a total cash position of MXN $3.97 B.

    This cash position is divided in:

    Residual Value of Securitized Toll Roads:

    This is the future cash flow that the company will get for the remaining years of concession, after repayment of each securitized debt.

    Currently PINFRA has 6 securitizations of Toll Roads one of which includes 2 roads (ARMEC)

    Residual Value Estimate:

    Assuming an average traffic growth of 2.6% in PINFRA's securitized highways (in line with GBM analysts; vs. 3% company's base case) and an average WACC of 11%, we got to a Residual Value estimate of MXN $6.56 B.

    Excluding ARMEC (which securitization is to be settled in the short run) the remaining 5 Toll Roads Residual Value estimate would be around MXN $2.8 B vs. company's base case of MXN $3 B

    Securitization

    Residuals (MXN $M)

    Estimated pre-payment date

    Concession's length

    ARMEC

    $3,772

    2010

    2021

    CONCECB

    $180

    2015

    2036

    CPACCB

    $980

    2016

    2023

    TENANCB

    $1,044

    2020

    2036

    PADEIM

    $586

    2023

    2030

    ZONALCB

    -

    2034

    2035

    TOTAL

    $6,562

     

     

    Total ex ARMEC

    $2,790

     

     

    Valuation:

    How is the market valuing PINFRA?

    Price

    $29

    Shares Out. (Mill)

    372

    Mkt. Cap

    $10,862

     

     

    Securitized Toll Roads' DEBT

    $11,800

    Cash

    $2,050

    EV

    $20,612

    EBITDA

    $2,217

     

     

    EV/EBITDA

    9.3x

    PINFRA's real intrinsic value (incl. residual value):

    Mkt. Cap

    $10,862.4

     

     

    Securitized Toll Roads' DEBT

    x

     

     

    Cash

    $2,050

     

     

     

     

     

     

     

    Residual Value Assumptions

    Residual Value of Securitized Toll Roads

    $2,000

    $2,500

    $2,800

    EV

    $6,812

    $6,312

    $6,012

    EBITDA

    $1,193

    $1,193

    $1,193

     

     

     

     

    EV/EBITDA

    5.7x

    5.3x

    5.0x

    Data: 12M after ARMEC repayment (may10).

    EBITDA: excludes the securitized toll road EBITDA; includes ARMEC's EBITDA as we already subtracted its residual value.

    Figures in MXN $M

     

    Comparative 

    PINFRA

    Sector Average

    EBITDA Margin

    62.6%

    16.5%

    EV/EBITDA

    5.0x - 9.3x

    18.0x

     

    FCF:

    Mkt. Cap

    $10,862

    Cash

    $1,770

    Residual Value of Securitized Toll Roads

    $2,000

    Operating Business EV

    $7,092

    FCF

    $1,193

    FCF Yield to current value

    16.8%

                                FCF TTM from May 2010

    Business Plan 2009-2015:

     

    Initial Cash Position (e)

    FCF (e)

    New Business Investment (e)

    2009

    $1,730

    $599

    $279

    2010

    $2,050

    $728

    $360

    2011

    $2,418

    $1,231

    $1,393

    2012

    $2,256

    $1,356

    $92

    2013

    $3,529

    $1,747

    ?

    2014

    $5,276

    $1,979

    ?

    2015

    $7,255

    PINFRA Current Mkt. Cap

    $10,862

    Considering the company's initial cash position and the expected Cash Flows from current projects, and subtracting the expected investment; we concluded that as of 2015, the investor shall get almost for free the remaining, roughly 17, years of concession of these same businesses.

    Note on the industry:

    It is worth noting that it is not built in our Price Target, the highly probable scenario that PINFRA could be granted with new concessions, increasing the value of its portfolio.

    The following thoughts must be consider in order to obtain some perspective of the Mexican infrastructure industry's potential:

    Considering that Mexico's GDP could expand over 3.0% on 2010, according to the Ministry of Finance, this year's investment in infrastructure should represent 5.0% of the country's GDP.

    Furthermore, seeing the advance that the National Infrastructure Program (2007-2012) has had so far in the last three years, we can observe that roughly US $140 B or 60% of the investment goal established by the federal government still remains to be accomplished, and considering that the economic outlook has improved, it is more likely that a significant progress will occur during and as of 2010. 

    US $B

    PNI 2007-2012

    Advance 2007-2009e

    % of Advance

    Highways

    26.49

    10.79

    40.7%

    Railroads

    4.52

    2.05

    45.4%

    Ports

    6.55

    1.89

    28.9%

    Airports

    5.45

    0.82

    15.0%

    Telecommunications

    26.12

    7.77

    29.7%

    Water, Sewerage and Flood Control

    18.64

    7.7

    41.3%

    Electricity

    35.07

    11.99

    34.2%

    Hydrocarbons

    110.85

    51.17

    46.2%

    Total

    233.69

    94.18

    40.3%

     

     


     

    [1] Includes PINFRA's construction business. The asphalt business EBITDA margin is ~ 37%.

    [2] Twenty-foot equivalent unit

    [3] This is the only of the 6 securitizations that includes 2 Highways: Armería-Manzanillo Ecatepec-Pirámides.

    [4] ARMEC TTM FCF MXN $451 M

     

    Catalyst

    the repayment of ARMEC securitization will significantly improve the company's cash generation.

    the company could be granted with new concessions as the PNI (National Infrastructure Program) advances in the following years

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