Morningstar | Solid Start to Year for Vinci in 1Q; Shares Overvalued
Narrow-moat Vinci reported 5.9% like-for-like sales growth in the first quarter with good performance across concessions and contracting. The order book increased 10%, but order intake was up only 1%, which is in line with our view for decelerating construction activity in Europe as we progress through 2019. We don’t expect to make a material change to our EUR 78 fair value estimate. At current levels, the shares look overvalued.Traffic on the autoroutes increased 1% in the first quarter, held back by a weak 0.7% increase in light-vehicle traffic due to the residual impact of the yellow vest protests early in the quarter and a negative calendar effect with Easter falling in March last year. We expect improving traffic growth throughout the year but only a 1.5% increase for the year, considering the waning economic environment.
Airport passenger traffic remained solid with a 6.4% increase in the first quarter. After several years of double-digit traffic growth, the pace is slowing in line with our expectations. The Lisbon airport is starting to reach capacity limits. Vinci signed an agreement in January with the Portuguese government to expand the airport's capacity. This is positive for the long-term outlook, but traffic growth will probably be muted in the next few years.
Like-for-like growth was strong in all three divisions of the contracting business. Eurovia was the leader with nearly 15% sales growth. However, most business is done in the second half of the year, so first-quarter performance is not a good indicator of full-year results.
Vinci is engaged in building, civil engineering and facilities management. Through its subsidiaries, Co. is engaged in five divisions comprising of: the Building division which provides retail solutions including construction and fit-out in both the retail and commercial sectors; the Civil Engineering division; the Air division which provides program management, engineering and construction services to customers with airport infrastructure requirements; the Technology division; and the VINCI Facilities division which provides facilities management, repair and maintenance and small works in both the private and public sectors.
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