Upcoming Performance Plan And Global Expansion Will Boost Italy's Airspace Management

Key Takeaways

• Positive regulatory changes and strong traffic growth are expected to drive revenue, bolstered by Italy's tourism appeal and airspace improvements.
  
• Strategic expansion in nonregulated markets and new industrial plans could enhance earnings and stock valuation.
  
• Regulatory and operational uncertainties, along with cost pressures and traffic dependence, pose risks to ENAV’s revenue, earnings stability, and profit margins.

Catalysts

Provides air traffic control and management, and other air navigation services in Italy, the rest of Europe, and internationally.

• ENAV is approaching a new regulatory period, which includes a positive Performance Plan for 2025-2029 that could bring clarity and potential revenue growth through improved airspace management. This will likely impact revenue positively.
  
• Strong double-digit traffic growth in air routes and terminal services, especially as Italy remains a top tourist destination, could drive revenue growth as service units continue to rise significantly.
  
• ENAV has reduced the free route airspace altitude in advance of the European deadline, which benefits flight efficiency and reduces costs for carriers, potentially leading to increased preference for Italy's air routes, thereby impacting revenue positively.
  
• The company is actively expanding in nonregulated markets with significant new contracts worldwide, such as in Saudi Arabia, Kosovo, and Cambodia, which are expected to contribute to revenue growth through diversification.
  
• ENAV is set to present a new industrial plan and dividend policy, which may include strategic initiatives and financial optimization, potentially improving earnings and overall investor perception of the stock's value.

ENAV Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ENAV's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.6% today to 14.5% in 3 years time.
• Analysts expect earnings to reach €163.0 million (and earnings per share of €0.28) by about January 2028, up from €115.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €142 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.4x on those 2028 earnings, up from 18.9x today. This future PE is greater than the current PE for the GB Infrastructure industry at 8.8x.
• Analysts expect the number of shares outstanding to grow by 2.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.01%, as per the Simply Wall St company report.

ENAV Future Earnings Per Share Growth

Risks

• Regulatory changes and discussions with the European Commission could introduce uncertainties and risks that may affect ENAV’s strategic positioning and financial metrics, potentially impacting revenue consistency.
  
• Dependence on seasonal traffic surges, particularly during the summer months, could lead to financial performance volatility and affect revenue and earnings stability if such surges do not materialize consistently.
  
• Negative balances, such as the traffic risk mechanism and cost recovery mechanisms, indicate that revenue assumptions may not fully align with actual traffic and cost dynamics, possibly impacting net margins and earnings.
  
• Increasing operational costs, especially personnel-related expenses, may put pressure on profit margins, which could negate revenue growth stemming from increased traffic.
  
• The revised traffic forecasts and regulatory tariff plans are not yet finalized, potentially introducing unpredictability around how nonregulated revenues and pricing mechanisms will affect future revenue streams.

Valuation

• The analysts have a consensus price target of €4.82 for ENAV based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.1 billion, earnings will come to €163.0 million, and it would be trading on a PE ratio of 24.4x, assuming you use a discount rate of 12.0%.
  
• Given the current share price of €4.05, the analyst's price target of €4.82 is 16.0% 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.