UBS flags concerns for Aena, cuts rating

Investing.com -- Shares of Aena SME SA (BME:AENA) fell on Wednesday after UBS downgraded the stock to "neutral" rating from a "buy."

UBS analysts based their revised outlook on several factors that temper optimism about the company's near-term growth and valuation potential, despite its year-to-date share price increase of 23%.

The UBS report flagged concerns about Aena's future profitability and growth trajectory, projecting the lowest EBITDA compound annual growth rate among European airports for the fiscal years 2024-2028, at just 2%. 

Analysts cited a range of challenges, including expected tariff reductions of about 3% annually starting in 2027 as part of the DORA III regulatory framework. 

These adjustments are anticipated to address current over-earnings relative to regulated returns but may place downward pressure on margins.

Furthermore, UBS emphasized potential hurdles arising from a significant uptick in capital expenditures under DORA III, projected to commence in 2027. 

This includes extensive construction projects for new terminal facilities, which carry execution risks and are expected to weigh on free cash flow yields. 

By 2027, Aena’s FCF yield is forecasted to decline to 4.3%, below its pre-COVID historical average of 6%.

While Aena's valuation metrics, such as its 2025 estimated EV/EBITDA ratio of 9.6x, are at a discount of roughly 20% compared to historical pre-COVID levels, UBS analysts expressed skepticism about a meaningful re-rating in the short term. 

This cautious stance reflects the confluence of slower-than-historical EBITDA growth, uncertainties in the regulatory environment, and prevailing high bond yields.

UBS also mentioned some positive factors, including anticipated growth in retail revenue, particularly due to the renovation of Madrid duty-free shops and additional airside space in Palma de Mallorca. 

However, these gains are expected to be partially offset by lower minimum annual guarantee revenues from retail operations.

Aena remains a major player in the global aviation sector, operating Spain's extensive network of 46 airports and two heliports, along with international assets in the UK, Brazil, and other regions. 

Despite its strong market position and a competitive 5.5% dividend yield, UBS's tempered expectations led to a slight increase in the 12-month price target to €215 from €210 but underpinned the downgrade to "neutral."