Acquisitions Of Sorocabana Rota And Lot 3 Will Expand Road Network And Strengthen Operations

Key Takeaways

• Acquisitions expand CCR's road network, boosting revenue and EBITDA, while efficient operations cut costs and improve margins.
  
• Divestment from underperforming assets enhances financial resilience, and traffic demand growth supports potential revenue and EBITDA gains.
  
• High interest rates, project delays, legislative changes, and asset management issues could negatively impact CCR's profitability, margins, and growth opportunities.

Catalysts

Engages in the provision of infrastructure services for highway concessions, urban mobility, and airports in Brazil.

• CCR's acquisition of the Sorocabana Rota in Sao Paulo and Lot 3 in Parana adds nearly 900 kilometers to its road network, contributing to selective and profitable growth, which is likely to increase revenue and EBITDA.
  
• Efficiency improvements, including a 20% reduction in energy costs through a partnership with Neoenergia Group and a leaner headcount, are expected to decrease operational expenses and improve net margins.
  
• The demobilization from underperforming assets such as MSVias and CCR barges will remove negative EBITDA contributors, enhancing overall earnings and financial resilience.
  
• Continued focus on capital optimization and liability management has already generated gains and reduced the cost of debt, contributing to improved net income and future financial performance.
  
• Traffic demand growth across various segments, notably a 9% increase in airport passengers and significant growth in Mobility from resumed in-office activities and new transportation stations, indicates potential revenue and EBITDA growth.

CCR Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CCR's revenue will decrease by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.7% today to 14.5% in 3 years time.
• Analysts expect earnings to reach R$2.6 billion (and earnings per share of R$1.29) by about March 2028, up from R$1.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.5x on those 2028 earnings, up from 19.3x today. This future PE is greater than the current PE for the BR Infrastructure industry at 15.5x.
• Analysts expect the number of shares outstanding to decline by 0.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 26.12%, as per the Simply Wall St company report.

CCR Future Earnings Per Share Growth

Risks

• The macroeconomic scenario with high interest rates could impact CCR's ability to finance new investments, potentially affecting future revenue and profitability.
  
• The delay in the execution of planned CapEx, particularly for Lines 8 and 9, could result in project delays and increased costs, impacting future earnings and net margins.
  
• The new legislation regarding road animals and increased provisions for labor could result in unforeseen costs, negatively impacting operating expenses and net income.
  
• The challenges with demobilizing unprofitable assets like MSVias and CCR Barcas highlight potential issues with asset management, which may affect overall profitability and risk management.
  
• Increased competition in new concessions, coupled with potentially high required profitability due to macroeconomic uncertainties, might limit CCR's future growth opportunities and revenue generation.

Valuation

• The analysts have a consensus price target of R$15.325 for CCR based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$18.0, and the most bearish reporting a price target of just R$12.3.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$18.0 billion, earnings will come to R$2.6 billion, and it would be trading on a PE ratio of 23.5x, assuming you use a discount rate of 26.1%.
• Given the current share price of R$11.98, the analyst price target of R$15.32 is 21.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.