EUR 850.00 For Business Accounts Only

Morningstar | Vinci Company Report

Vinci is the largest engineering and construction company in France, where it generates more than 60% of its EUR 40 billion in revenue. While contracting generates 85% of revenue, Vinci’s infrastructure concession business accounts for two thirds of operating profit. We favour the moaty nature of concessions, but the combination of these businesses is sound. Contracting allows the concession business to bid on greenfield infrastructure projects. Conversely, concessions provides the contracting business with a pipeline of (often higher-margin) work. During economic downturns, the company can eschew marginal contracting projects, given the large profits generated from its stable infrastructure business.We think the company's foundation rests on its motorway network under concession in France, the biggest in Europe. These mature assets are of high quality, given resilient traffic growth and an effective contract framework that has allowed the company to adequately increase tolls. Vinci wants to further tilt its business toward concessions, but similar opportunities in motorways are rare. Therefore, the company is targeting the growing airport concession market. In 2013, Vinci became a major player in airports through the acquisition of a 50-year concession covering Portugal’s 10 main airports. We like Vinci’s monopoly status in the country, and with sales and margins up significantly, the company has already delivered on its promise to improve performance. Vinci has since added several other airport concessions to its portfolio and is now the fifth-largest player globally in this business.The contracting business remains largely dependent on the French market despite a multiyear push to diversify the business geographically. The French economy appears to have stabilised and the construction market is returning to growth. Consequently, we expect a solid uptick in contracting profits over the next few years.