Awarded Stockholm Metro tender
- CD via its 45%-owned JV with Go-Ahead has won a S$5.1bn contract to operate the Stockholm Metro. The 11-year contract commences May 2025F.
- CD has had success collaborating to win rail tenders; this marks its third foray into a new operating geography since 2021.
- We estimate the contract win could result in 4-5% EPS accretion annually from FY26F. Reiterate Add and TP of S$1.60.
ComfortDelgro’s JV awarded contract to operate Stockholm Metro
? ComfortDelgro (CD) announced that its joint venture, Connecting Stockholm (Unlisted), has been awarded a contract to operate and maintain the Stockholm Metro. Connecting Stockholm is a 55:45 joint venture between Go-Ahead Group (GOG LN, Not Rated) and CD.
? Connecting Stockholm will operate and maintain all seven lines of the Stockholm Metro, including 100 stations, six depots and 107km of track. It will also provide project support for the Stockholm Public Transport Administration to further develop and expand the Stockholm Metro in the future.
? The contract is for a term of 11 years, starting in May 2025F. According to Swedish media outlet Dagens Nyheter, the contract value is c. SEK40bn (S$5.1bn).
Partnership model
? We are positive on the tender win as it adds to CD’s growing international rail footprint. Stockholm Metro is CD’s first rail contract in Sweden and its largest rail passenger operation outside of Singapore.
? This also marks CD’s third successful entry into a new operating geography since 2021, having won contracts in New Zealand and France similarly via a partnership model.
? We understand that the business model is asset-light, with Connecting Stockholm focusing on rail operations and maintenance, similar to CD’s existing public bus operational models in Singapore, UK and Australia, which have minimal exposure to fare revenue risks. This could provide CD with stable cash flow and defensive earnings, in our view.
? Assuming a mid-single-digit operating margin, we estimate the tender win could result in c.3-4% EPS uplift annually post operational stabilisation in FY26F.
Reiterate Add with TP of S$1.60
? Reiterate Add as we continue to like CD for its FY24F earnings growth and resilience on the back of UK operations margin expansion and decent dividend yield of 5.5% (FY24F). Our TP of S$1.60 is based on 16.2x FY25F P/E (0.5 s.d. above CD’s 5-year historical average).
? Re-rating catalysts include earnings improvement in its UK operations and new tender wins.
? Downside risks include slow margin recovery due to the inability to pass on costs and negative forex translation impact given the strong Singapore dollar.
