Risks that could prevent the shares from achieving our target price include:
Potential volatility in free cash generation means that the applied valuation multiple may deviate from the sector norm. The rail industry is becoming increasingly competitive, and long-run pricing behavior – and therefore margins – are uncertain. Other risks include integration risk from M&A, as well as execution risk on projects and cost reduction plans. Key upside risks are urban density and population growth driving higher-than-expected growth in rail, as well as higher exit prices from JVs than we assume in our valuation.
If the impact of these risks is more positive/negative than we assume in our base case, the share price could overshoot/undershoot our target price.
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