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Friday 18 October 2019

John Lynch: 'Vinci's airport business would appeal to Leonardo'

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Leonardo Da Vinci. Photo: AP
Leonardo Da Vinci. Photo: AP

John Lynch

If, amazingly, you have no interest in hearing more about Leonardo de Vinci, arguably the greatest artist, engineer and scientist of the last millennium, then plan to turn off your telly and scrap your magazine subscriptions for the next ten months.

Because this is the 500th anniversary of the death of the great Tuscan who died in central France in 1519 when he was court painter to the French King Francis.

Leonardo did more than just paint priceless pictures, he also created plans for great schemes and machines which would have made him a lot of cash, if he'd managed to be born say, 400 years later.

His study of birds had given him insights into the phenomenon of flight which had him sketching plans for helical rotors (as in helicopters) and he is even credited with designing a parachute.

Although he never made money from his inventions, there is little doubt that if he was chief designer for Airbus, it would have been a breeze for Leonardo.

So when I heard that the French infrastructure conglomerate, Vinci SA was taking over the UK's second biggest airport, Gatwick, I thought it was a neat fit.

Vinci, our target company today, is indeed called after Leonardo. And appropriately it operates airports in France, Portugal, Japan, Cambodia and Latin America.

Control of Gatwick (which cost it €2.9bn) means it now handles its 46 million passengers each year.

Vinci, under different names, has been around for a long time but at the beginning of this century it was hived off from its then parent company Vivendi, and renamed Vinci. While the majority of its business and profits are generated in France; it has a global footprint and operates in 100 countries, with 194,000 employees and a market value of €47bn.

Vinci's construction arm is one of the largest in the world and is the workhorse of the group. It employs 90pc of its workforce, generates the bulk of the group's revenue but its profits are modest.

The building business has some notable achievement to its credit like the Aswan Dam, the Pompidou Centre and the Channel Tunnel.

The 'core' of Vinci's business and the source of much of its profits, is winning and operating government infrastructure concessions.

This includes car parks, airports, stadiums and toll roads. The latter is the groups' number one profit source with its long term contracts to run half of the French motorway toll system, throwing up an impressive profit margin of 28pc.

The group's present strategy is to focus on airport concessions which are extremely profitable with margins of 24pc. Vinci wants to build up its longer term revenues to compliment its shorter term ones like construction.

After snapping up Gatwick, Vinci is turning its attention to Airport de Paris (ADP) owner of Orly and Charles de Gaulle airports. However ADP will not come cheap having a market value of €16bn.

Vinci has a small stake in ADP and has made it well known it would like to purchase the state's 50pc but it faces headwinds.

The French government is willing to sell its stake but it also wants more than just Vinci as a bidder. It is still smarting over the sale of its motorway licenses 14 years ago which saw Vinci grab most of them on the cheap.

An added problem is the anti-government street protests which rule out immediate sale of any state assets.

Vinci is big and profitable. It made a profit of €2.7bn with margins of 6.7pc on revenues of €41bn a healthy profit rate for the business it operates in.

The share price today is just over €80, a rise of 40pc over the last six years. Investors are pleased with the policy of giving half of all profits back to shareholders.

Investing in Vinci is still a bet on the French economy but with the company diversifying geographically; it could be a worthwhile bet in a downturn.

I wonder what Leonardo would think.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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