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Ferrovial shares fall as Ontario eyes potential 407 ETR buyback

Published 04/10/2024, 08:12 pm
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Investing.com -- Shares of Ferrovial (NASDAQ:FER) (BME:FER) are trading lower as the company faces uncertainty over a potential buyback of the 407 Express Toll Route in Canada.

At 6:10 am (1010 GMT), Ferrovial was trading 3.5% lower at €36.84.

The dip in Ferrovial's stock comes after comments by Ontario Premier Doug Ford (NYSE:F) suggested that the provincial government might consider repurchasing the toll road to alleviate traffic congestion around Toronto. 

This speculation has triggered concern among investors, as the 407 ETR represents a big portion—around 40%—of Ferrovial's valuation.

Ford has emphasized that "all options are on the table," indicating the government's openness to several strategies to address congestion. 

These range from paying commercial trucks to use the 407 to potentially increasing speed limits across major highways. However, a complete buyback of the 407 is a central focus of the discussion. 

Ford suggested the road might be worth around CAD $35 billion, further fueling market uncertainty.

Under Article 23 of the concession agreement, the Ontario government could theoretically move forward with this buyback, but it would need to pay fair market value for the asset. 

Unlike other recent road repurchase cases, such as the SH-288 in Texas, where the buyback occurred at prices below the asset's value, the terms of the 407 ETR agreement would require Ontario to compensate Ferrovial fully, said analysts at Jefferies in a note. 

“Ultimately, this outlook is positive for the 407, but also means new capacity will likely be a longer-term priority for the government,” the analysts said.

Doug Ford said that the highway is likely to reach maximum capacity in the next 20 to 25 years. This is seen as a long-term benefit for the road's operators, as it suggests growing demand for the asset.

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