(News Bulletin 247) – The British bank has moved to overweight on the operator of the Channel Tunnel, anticipating a significant recovery in the company’s shuttle business, and less competitive pressure from ferries.

For almost two years now, Getlink shares have not done much on the stock market. Its stock was close to 17 euros in mid-June 2022 and is currently at 16.68 euros. But the British bank Barclays believes that the operator of the Channel Tunnel has the means to bring its action out of its lethargy.

The establishment raised its advice on the infrastructure group to “overweight”, equivalent to buying, against “neutral” previously, and increased its target to 20 euros against 15 euros previously. Which gives the stock a potential of around 22% at Wednesday’s closing price.

This increase in advice allows the action to gain 1.7% at the start of the afternoon on the Paris Stock Exchange, after having gained more than 3% at the start of the session.

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A better economic situation in the United Kingdom

Barclays expects Getlink to sign “the strongest recovery” among the infrastructure operators tracked by the bank. Currently, Shuttle activity (the group’s shuttles transporting private vehicles and goods trucks across the Channel) is operating at a depressed level. On average, over the first four months of 2024, freight truck traffic is only 72% of that of 2018, before the implementation of Brexit.

Traffic is struggling to recover from a year 2023 “which constituted the perfect storm”, writes Barclays. “Last year saw a combination of a weak European macroeconomy, a battle for market share and one-off adverse factors that impacted key seasonal periods, testing the strategy marketing and pricing of Getlink”, develops the establishment.

But the British economy, to which Getlink is most exposed, is improving. Economists at Barclays recently raised their forecast for UK growth to 0.8%, from 0.3% for the current year. Current disinflation could revive consumer demand for fresh and express consumer products, which represent a significant portion of the volumes of goods transiting the Shuttle, the bank anticipates. Key rate cuts from the Bank of England and the European Central Bank (ECB) could also provide support.

Ferry companies face additional costs

In addition to this economic recovery, Barclays emphasizes that competitive and pricing pressure from ferry operators, Getlink’s main adversaries in the market, will decrease. These companies face more costly regulations in terms of labor costs (law on the minimum wage for seafarers) and environmental regulations. Ferry companies will in particular be gradually included in the market called EU Emissions Trading Systems (ETS), or the system for trading Co2 emission quotas.

“With some labor inflation and future Co2 emission costs potentially amounting to 5-10 euros per crossing over time, we estimate that ferries will gradually face cost inflation of 5 % to 15% over time This could alleviate some pressure on Getlink,” Barclays wrote.

“Furthermore, Getlink has proven to be a disciplined player historically, with few compromises on pricing. We expect this behavior to be even more pronounced in the future as the company further differentiates its services. reliability, speed, low carbon emissions and, increasingly, comfort remain key aspects that Getlink promotes and regularly invests in,” the bank continues.

All of these elements should support Getlink, a stock “with the largest beta” (i.e. the most cyclical) in the infrastructure universe in the coverage of the establishment. “We estimate that a 5% recovery in shuttle traffic would have an impact of 2% on revenues, but 5.5% on earnings per share. A return to pre-Covid traffic levels (growth of 25 %) would therefore imply a very significant increase of 25% to 30% in profits,” calculates Barclays.

The bank chose to retain only half of this possibility (i.e. growth of 12.5%) and to extend it until 2028. This is, however, enough to give potential to the action.

Eleclink 2 and rail traffic

Beyond pure fundamentals, other factors could provide additional support to Getlink, in the medium term.

Based on an opinion from the Energy Regulatory Commission (CRE) on the project in question, Barclays estimates that a second Eleclink cable (an electricity interconnection between the United Kingdom and Europe which began in May 2022 and significantly increased Getlink’s results) could be deployed in 2032.

In the rail sector, Evolyn, a Spanish low-cost start-up, intends to compete with Eurostar and offer Paris-London journeys from 2025 with a complete fleet in working order in 2026-2027.

“We believe that lower cost competition could boost traffic on the existing London-Paris line. Additionally, and perhaps most importantly, we consider that such an announcement could catalyze further projects ( new routes and/or other operators),” Barclays explains.

Ultimately, the development of new rail lines could ultimately add two euros of value per Getlink share, Barclays considers, and “a second Eleclink” one euro per share.