UBS has revised its view on Fraport AG, upgrading the Frankfurt airport operator from a "sell" to a "neutral" rating while trimming the 12-month price target to €65 from €67. The change follows an approximate 18% fall in Fraport's shares since the start of the Middle East conflict, a decline that wiped about €1.60 billion from the company's market capitalization.
Outlook and valuation
At the time of UBS's note, Fraport was trading at €68.05 on May 14, inside a 52-week range of €58.15 to €85.60 and reflecting a market capitalization of €6.28 billion. UBS established a downside case of €48 per share and an upside case of €80 per share, a roughly 1-to-1.5 risk-reward framework. In UBS's words, "Post this move, we believe the current valuation better represents underlying fundamentals and see risk/reward as better balanced at this stage."
The research house's base case for Fraport assumes FY27 free cash flow of about €245 million, passenger traffic rising 1.2% per year on average from FY27 through FY30, retail spend of €3.50 per passenger, and Ground Handling EBITDA of €34 million. The downside scenario presumes a 2% reduction in traffic and free cash flow of €100 million, while the upside assumes 4% traffic growth and free cash flow of €400 million.
Changes to forecasts
UBS's FY27 EBITDA forecast for Fraport stands at €1.54 billion, which the bank notes is approximately 5% to 6% below Bloomberg and Visible Alpha consensus. Its FY27 free cash flow projection of €245 million is about 50% lower than consensus expectations near €500 million.
According to UBS, this divergence versus consensus stems from several factors: higher cash tax payments as carried-forward losses are exhausted, increasing cash interest charges, minority dividends, elevated capital expenditure, lower EBITDA, and the absence of a repeat working capital cash inflow that had previously bolstered free cash flow.
The bank trimmed its EBITDA forecasts for FY26 and FY27 by 0.6% and 0.7% respectively, to €1.45 billion and €1.54 billion. These downgrades were attributed to softer passenger volumes and weaker profitability in Ground Handling. UBS reduced its FY26 passenger projection to 64.6 million from 65.2 million. Ground Handling EBITDA for FY27 was lowered to €34 million from €42 million, a reduction of 19.6%.
Relative multiples and balance sheet
On UBS's numbers, the stock is trading at roughly 9.9 times FY27 EV/EBITDA, a modest premium to Aena, which UBS cites at about 9.3 times. UBS characterizes that premium as unjustified. Fraport's FY27 free-cash-flow yield on the bank's estimate is about 3.9%, compared with a historical range of 5% to 7% during periods of comparable cash generation between 2014 and 2017.
Net debt is forecast at €8.23 billion for FY26, leaving net debt-to-EBITDA at around 5.7 times, with UBS expecting this leverage to fall to about 4.8 times by FY28.
Operational and regulatory risks
UBS also flagged a potential decision from the European Commission expected in July on whether to apply Emissions Trading System charges to long-haul flights. UBS said such a move would be negative for Frankfurt, given that roughly 50% of its traffic is transfer traffic and about two-thirds of that transfer volume connects to intercontinental destinations.
On earnings per share, UBS projects EPS of €3.26 for FY26, down from €4.67 in FY25, with a recovery to about €4.00 by FY28.
What the bank sees now
UBS's repricing and rating change reflect a view that the recent market sell-off has moved Fraport's valuation closer to the bank's assessment of underlying company fundamentals. The firm has tightened its scenarios around traffic and cash-flow outcomes while identifying tax, interest, capex, operating profitability and potential regulatory charges as the main drivers of the gap versus consensus forecasts.