UBS has moved Aéroports de Paris (ADP) into a Buy rating from Neutral and adjusted its 12-month target to €127 per share, up from €122. The firm argues that the shares are trading at a discount to the valuation of ADP’s regulated asset base that it believes is not justified given current fundamentals and regulatory prospects.
ADP shares were trading at €104.10 as of March 17, putting the company’s market capitalisation at about €10.3 billion. UBS noted that the stock is a crowded short, with short interest exceeding 60 days to cover.
The stock has endured a prolonged correction from its record high. ADP is down roughly 48% from its all-time peak of €200.60 reached in July 2018. During the onset of the COVID-19 crisis the share price plunged 60% between February and March 2020 to a low of €71.55, before staging a dramatic single-day gain of 25.1% on November 9, 2020, following Pfizer's vaccine announcement. Over the past 52 weeks the share price has traded in a range of €92.80 to €131.80.
"At today’s share price...we estimate the market attributes a 50% discount to the valuation of the regulated asset base which we see as unjustified," UBS said, arguing the market is pricing in deeper structural risk than the brokerage considers warranted.
UBS’s 12-month total return forecast for ADP is 25.3%, comprising 22% in capital appreciation and a 3.3% dividend yield. For context, UBS is using a market return assumption of 7.4% for comparison.
On valuation metrics, UBS places ADP at 8.6x EV/EBITDA on its FY27 estimate. That multiple sits below the range UBS cites for European airport peers of 9x to 11.5x, and below ADP’s own 10-year pre-COVID average of 10.2x. UBS noted that a 1x EV/EBITDA re-rating would add roughly 20% to ADP’s market capitalisation.
Regulatory timing is an important near-term variable. France’s transport regulator ART is expected to publish a preliminary ERA IV opinion in April, with a final decision due in November. UBS sets an allowed WACC of 5.2% in its base case, compared with ADP’s proposal of 5.9%.
UBS’s regulatory scenario also assumes approximately €75 million of costs currently classified as regulated would be reclassified as non-regulated, and a downward adjustment to the regulated asset base (RAB) of €200 million. UBS reports ADP’s RAB at €6.3 billion in FY26, with a forecast to reach €11 billion by 2034.
In sensitivity terms UBS estimates that a 1% change in ADP’s regulated return on capital employed (ROCE) equates to about €60 million in post-tax profits, while a 1% tariff change would correspond to approximately €15 million of aviation revenues, or roughly 0.6% of group EBITDA.
Traffic assumptions drive the near-term earnings picture. UBS trimmed its FY26-FY30 EBITDA forecasts by between -4% and +1%, largely reflecting lower traffic projections. Group EBITDA is forecast at €2.24 billion in FY26 under UBS assumptions, which is below the company’s guidance of greater than €2.35 billion, and is expected to recover to €2.42 billion in FY27.
On the earnings front UBS’s diluted EPS forecast for FY26 is €5.65, rising to €7.22 in FY27. Net debt to EBITDA is forecast at 3.9x in FY26.
UBS flagged regional exposure related to Middle East travel as a factor for ADP. Paris airports have about 5% direct exposure to Middle East passenger traffic and around 12% of Paris retail revenues are linked to Middle East passengers. UBS’s base-case forecast has FY26 Paris traffic down 0.5% year-on-year, versus the company’s own guidance of a 1.5% to 2.5% increase.
"The stock is pricing in a structural erosion of Middle East traffic in perpetuity," UBS added, while noting its FY26 EBITDA estimate sits 5% below Bloomberg consensus.
Key takeaways:
- UBS upgrades ADP to Buy, raising its 12-month target to €127 and forecasting a 25.3% total return over 12 months made up of 22% price upside and a 3.3% dividend yield.
- Valuation is below peers and long-run averages at 8.6x EV/EBITDA on FY27 estimates, and UBS contends the market applies an excessive discount to the regulated asset base.
- Regulatory outcomes and traffic linked to the Middle East are key near-term drivers, with ART milestones expected in April (preliminary) and November (final).
Risks and uncertainties:
- Regulatory risk - ART decisions on ERA IV, WACC and RAB adjustments could materially affect allowed returns and the classification of costs, impacting earnings and valuation.
- Traffic risk - Lower-than-expected passenger volumes, particularly related to Middle East travel, could depress retail revenues and group EBITDA.
- Market positioning - High short interest and the current crowded short positioning could amplify share price volatility.