Mason Hawkins, the legendary value investor who is CEO of LongLeaf Partners is finding value in distressed European equities. LongLeaf’s International fund (MUTF:LLINX) has a 40% allocation the countries of France, Ireland and Spain. Ireland is a country which another great investor, Wilbur Ross is particularly bullish on. Seth Klarman has reportedly being buying securities in Europe, including Spain.
Mason Hawkins also likes some Spanish stocks. Ferrovial, a Spanish based company involved in the transportation infrastruction makes up 6.4% of LongLeaf’s International fund, and 5.2% of Longleaf Partners Global UCITS Fund.
Ferrovial owns some toll roads in the North America, including Ontario’s 407. According to an article this evening in the Globe & Mail, Hawkins is very bullish on this particular toll road, and stated that it is one of “the best infrastructure assets in the world” due to its pricing power.
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Additionally, Hawkins noted that “toll tariffs have risen an average of over 10 per cent per year for the past 11 years.” This is far above the average inflation levels in the US over the past 11 years. This has also been a trend in the New York City area, as toll hikes have far exceeded official CPI numbers.
The toll road is a huge cash cow. In 2011 the Ferrovial collected €133-million alone from 407, up from €100-million in 2010.
The company also owns in a consortium with others (British Airports Authority) Ltd. (BAA), which runs Heathrow airport, in addition to five other airports in the UK.
What else does Hawkins like about the company? Due to Spain being labeled one of the troubled European countries, equities have sold off drastically. In general, European stocks are far cheaper than US stock, as we noted in a recent article. Ferrovial now has a yield of 5.4%, which is more than double the S&P 500’s yield of 1.95%. Mason Hawkins recently stated that the company has a free cash flow yield of 8.7% based on 2012 estimates.
The company is selling at a discount to sum of parts according to several European sell-side analysts.