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On Wednesday, UBS adjusted its stance on AENA SME SA (AENA:SM) (OTC: ANNSF) stock, shifting its rating from Buy to Neutral, while slightly increasing the price target to EUR215.00 from the previous EUR210.00. The revision comes after a notable year-to-date increase in Aena's share price, which has climbed by approximately 23%.
The downgrade reflects several factors, including the expectation that Aena will experience the lowest EBITDA compound annual growth rate (CAGR) between fiscal years 2024 and 2028 among its European airport and motorway peers, estimated at just 2%.
Furthermore, UBS does not foresee any immediate opportunities for consensus estimates to be raised, with its own EBITDA forecasts for fiscal years 2025 and 2026 aligning with the current consensus.
Despite trading at a roughly 20% discount compared to its historical average valuation pre-COVID, with a forward EV/EBITDA multiple of 9.6x for fiscal year 2025, UBS suggests that a significant short-term re-rating of Aena's shares may be challenging. This is attributed to several factors, including a substantial increase in capital expenditures beginning in 2027 with the DORA III investment plan.
This plan is expected to temporarily reduce return on capital employed (ROCE) and free cash flow (FCF) yield, while also introducing risks associated with the construction of new terminals.
Additionally, slower EBITDA growth compared to historical levels is anticipated due to uncertainties surrounding regulatory outcomes, which could include an estimated tariff decline of around 3% per year starting in 2027. The high bond yield environment, compared to pre-COVID levels, also plays a role in the tempered outlook.
In terms of free cash flow yield for fiscal year 2027, Aena is projected to have a 4.3% FCF yield, which remains below the pre-COVID historical average of approximately 6%. This comparison further underscores the cautious approach UBS has adopted towards the stock.
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