Hydrogen And Renewable Energy Expansion Will Support Long-Term Transport Infrastructure Prospects

Catalysts

About FNM

FNM is a diversified Italian transport and infrastructure group active in motorways, rail infrastructure and services, public mobility, and renewable energy generation.

What are the underlying business or industry changes driving this perspective?

• Persistently rising motorway and rail mobility in Northern Italy, evidenced by higher traffic volumes and passenger growth on core assets, should support incremental toll, ancillary commercial income and service contract revenues over the medium term. This would reinforce top line growth.
• Acceleration of photovoltaic capacity as FER-X tenders are awarded and delayed ready-to-build plants move into operation is set to expand low variable cost generation. This is expected to drive structurally higher recurring revenue and improve EBITDA margins as the portfolio scales.
• Hydrogen distribution projects along the motorway network position FNM to benefit from the gradual decarbonization of heavy and light transport. These projects open new high value fueling and service revenue streams that can enhance long term EBITDA growth.
• Capitalized interest on major motorway projects and the ramp up of construction activities such as Pedemontana, combined with regulatory clarity on PEF 2025 to 2028, should translate into higher future concession cash flows and earnings as assets enter full tariff regimes.
• Improving working capital dynamics as Regione Lombardia reimbursements normalize and Trenord related receivables are collected, alongside disciplined CapEx phasing, can reduce leverage from current elevated levels and lower net interest expense. This would support net income growth.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming FNM's revenue will decrease by 10.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 7.2% today to 4.5% in 3 years time.
• Analysts expect earnings to reach €30.6 million (and earnings per share of €0.07) by about December 2028, down from €67.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €60.3 million in earnings, and the most bearish expecting €-24.3 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 15.6x on those 2028 earnings, up from 3.1x today. This future PE is lower than the current PE for the GB Transportation industry at 18.0x.
• Analysts expect the number of shares outstanding to grow by 3.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.5%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Delays in photovoltaic plant commissioning linked to FER1 and FER X tender timing and restrictions on starting construction until incentives are granted could push a material portion of the planned 180 megawatts into 2026, slowing the scale up of low cost renewable generation and limiting expected growth in energy revenues and EBITDA margins.
• Rising leverage from higher CapEx in motorways, Ro.S.Co and Mobility and Services, combined with working capital absorption from slow reimbursements by Regione Lombardia and Trenord receivables, increases the adjusted net financial position above EUR 770 million. This may constrain future investment capacity and put pressure on net income through higher interest expense if rates or spreads rise.
• Structural cost inflation driven by renewal of national labor contracts, additional headcount, IT and maintenance spending and persistent driver shortages requiring outsourced services, together with weaker contracted electricity prices in 2025 compared with 2024, could erode operating leverage and compress EBITDA margins across several business units.
• Regulatory uncertainty around motorway tariff frameworks and ARC resolutions, including the prolonged consultation on Resolution 75 and the pending approval of the 2025 to 2028 economic financial plan, creates a risk that final rules are less favorable on returns for concessions expiring before 2031. This would weigh on future motorway revenues and concession related earnings.
• Operational and asset risks in rail and related businesses, such as the write down of obsolete rolling stock at Trenord, reduced lease payments for certain trainsets and the closure of the Iseo Brescia line, point to potential longer term pressure on Ro.S.Co and railway infrastructure cash flows, which could dampen consolidated revenue growth and group net margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €0.7 for FNM based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €673.0 million, earnings will come to €30.6 million, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 11.5%.
  
• Given the current share price of €0.47, the analyst price target of €0.7 is 31.8% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.