P AGE 137 M ASTERS INF

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THISDOCUMENTISNOTANINVESTMENTRECOMMENDATIONANDSHALLBEUSED

EXCLUSIVELYFORACADEMICPURPOSES (SEE DISCLOSURES AND DISCLAIMERS AT END OF DOCUMENT)

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M

ASTERS IN

F

INANCE

EQUITY RESEARCH

We are maintaining our BUY recommendation for Brisa, with a price target of 5.35€, which represents an upside potential of 23%.

 Macroeconomic view and traffic deterioration looks

already priced in: Even though, Brisa’s high exposure to the

domestic market can be risky, particularly after CCR’s sale in 2010, we believe the severe macroeconomic constrains are already priced in. Conversely to GDP figures and despite an expected decrease in traffic (-1.33% for 2011 and -0.62% for 2012), in our opinion, this fall will be better than expected, since Brisa through BCR, has a defensive network nature (high commuting traffic and low dependence on heavy traffic: please check appendix - BCR). Additionally, during 2011 and 2012 as well, we expect BCR to continue the recovery of part of the traffic lost to the competing shadow tolls which are now paid.

 Stable dividend policy and extended buyback program:

So far Brisa presents a dividend yield of 7.14% which is very attractive when compared to its peers. However, our analysis suggests this value can rise up to 11%, which would place Brisa as one of the best dividend players. This combined with an extended buyback program (up to 10%), already announced by Brisa could yield major gains, particularly, for risk averse investors.

 The discount for sovereign risk looks overestimated:

Given the current price, investors are assuming an implied unlevered cost of equity, over 9,5%, to price in Brisa. However, we believe 8,22% should be used instead. Besides, the rating agencies are already assuming that BCR can have a higher rating than the Portuguese Republic. (PRT: BBB- Fitch and S&P Vs Brisa main concession (BCR): BBB+ Fitch and Baa1 Moody’s)

B

RISA

C

OMPANY

R

EPORT

I

NFRASTRUCTURES

&

C

ONCESSIONS 27MAY 2011

S

TUDENT

:

A

NDRÉ

L

AMEGO

Mst16000284@novasbe.pt

Weak macro & Portuguese risk took

a toll on Brisa

Fair-value and dividend policy under review...

Recommendation: BUY

Vs Previous Recommendation Buy

Price Target FY11: 5.35 €

Vs Previous Price Target 6.80 €

Price (as of 27-May-11) 4.34 €

Reuters: BRI.LS, Bloomberg: BRI:PL

52-week range (€) 4.18-5.68

Market Cap (€m) 2604.0

Outstanding Shares (m) 600.0

Source: Bloomberg and Reuters.

Source: Bloomberg.

(Values in € Thousands) 2010 2011E 2012E

Revenues 673702 677180 687896

EBITDA 473779 482541 490489

Net Profit 778500 118906 114436

EPS 1.35 0.21 0.20

P/E 3.21 21.04 21.86

DPS 0.31 0.31 0.31

ROE 41.12% 6.49% 6.47%

Dividend yield 7.14% 7.14% 7.14%

EV/EBITDA 11.6 11.4 11.2

Net debt/EBITDA 4.64 4.58 4.48

Free cash flow yield N/A 11.44% 12.91%

Source: Company data and Nova Equity Research. -20% -15% -10% -5% 0% 5% 10% 15%

Brisa Vs PSI 20

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1. Executive summary

We are maintaining our BUY recommendation for Brisa, with a price target of € 5.35, which represents an upside potential of 23%.

Brisa represents for most investors a safe bet in times of crisis which can be partially explained by the strong financial records that the company exhibits. As a result, we reiterate this recession will not put at risk the financial situation of Brisa, even further, after the sale of CCR, which turned Brisa into cash king.

We think the reorganisation makes the high leverage of the main concession (BCR) sustainable and allows Brisa to maintain its current dividend, while keeping BCR’s debt maturity schedule affordable. This ensures it will continue to gain from cheap EIB debt, with the benefits of the re-profiling and the extension of its maturity, mainly releasing the pressure to refinance the EIB debt.

However, shareholders will likely demand higher risk premiums to mitigate the country risk, which will increase the discount rate and thus lowering Brisa’s value. Nevertheless, if the market starts to differentiate between company and country risk, which already appears to be the situation, as noted by Fitch and Moody’s in its BCR latest reports, this will be beneficial for Brisa’s price.

Moreover, this crisis will mainly affect Brisa’s concessions in terms of traffic and consequently their revenues, where, GDP, fuel prices and inflation are the main drivers for the concessions revenue growth.

These variables will be under enormous scrutiny in the coming years due to the austerity plans which are now reinforced by the IMF-ECB-EU. Therefore, we believe toll revenues will be significantly affected and despite Brisa’s effort to diversify its portfolio, it will not be enough to avoid a substantial slowdown in its cash flows.

Also, if we add Brisa’s difficulties to find new investments with attractive ROI, not only internally but especially abroad, we are forced to say, Brisa is in a consolidation stage where no significant growth is expected in the following years. Nevertheless, we think this crisis will not affect the announced dividend policy, and Brisa is capable of delivering the promised dividends. In our opinion, if Brisa fails to find attractive projects, it might extend its share buyback program (up to 10%) or increase its dividends, due to excess cash.

Strong balance sheet…

Cash flow growth slowdown…

Difficulties finding attractive projects…

Special dividend and share buyback programme? Re-financing does not represent a main concern…

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Positive

• Shadow tolls traffic recovery: In 2010, the government made several shadow tolls payable, which will have a positive effect on BCR’s network. (~2.5% in 2011)

• Declining capital expenditures: Brisa’s four main concessions are already built (exception made for part of the new airport link in BCR), which means the capex will be significantly lower in coming years.

• Cash king: Mainly, due to the sale of CCR,

Brisa holds approximately 1056 millions in excess cash, which represents approximately 41% of the market cap.

• Low refinancing needs: BCR has no

important repayments until 2013, which is quite reassuring due to the Portuguese crisis.

• Balanced Fixed / Floating interest mix: as

of31/12/2010, Brisa’s interest rate was 47% variable and 53% fixed which provides a balanced exposure to a possible scenario of rising interest rates.

• Secure credit rating: with all eyes on credit risks, Brisa was capable of secure a higher credit rating than the Republic of Portugal for the main concession (BCR), which aggregates most of the debt – BCR: BBB+ Vs PRT: BBB-.

• Protected against inflation: Since the

concessions’ tariffs are indexed to the CPI, it represents a good protection against inflation.

• Stable dividend yield story: Brisa will likely offer good returns, particularly for risk averse investors (current dividend yield is 7.14%).

Negative

• Economic downturn: Despite IMF’s

estimates, which suggest a real GDP growth in 2013, there is still the possibility of a delayed recovery due to structural problems and low productivity.

• Weak Portuguese traffic: For 2011 and

2012, we expect a global drop of -1.33% and -0.62%, respectively, given the current situation, which could be worse on the back of increasing fuel prices.

• Difficulties finding attractive projects: in our base case scenario, we are assuming the FCF would be paid out rather than reinvested.

• Fuel prices: In the past years, fuel prices

had a significant role in the traffic behaviour, which is expected to continue due to its increasing scarcity

• Unlevered cost of equity: There is still the possibility of further increases in the discount rate to compensate for the sovereign credit crisis. One of the most likely trigger events would be additional downgrades in the Portuguese credit rating.

• Financial risk: one important part of Brisa’s business is to secure affordable interest rates due to its high leverage. We expect this situation to remain under control but the current rates will likely increase.

• Brisal and Douro Litoral: these two

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Investment case

In our view, Brisa has a stable dividend yield story (currently 7.14% which can rise up to 11% during the next years) and is undervalued due to the current crisis, particularly considering the current price (-17,6% YTD) which already incorporates much of the bad news and we believe it does not represent its fundamental value. According to our base case scenario, investors are using an implied discount rate in our model over 9.5%, which we believe is unreasonable to compensate for the Portuguese sovereign crisis. Our analysis, suggests a discount rate of 8.22%. Therefore, our price target suggests 23% upside, which would take advantage of this mispricing while keeping the challenging macroeconomic environment priced in.

Corporate organization

The current corporate organization, reorganized in late 2010, introduces major differences, which the investors should be aware of. Therefore, the objective of this section is to clarify investors’ doubts, without reiterating what is already grasped by the market.

First of all, the holding company (Brisa) is now a holder of a business’ portfolio and is independent from all of its businesses. This means, the current reserves incorporated at the holding level (approximately € 500 M), cannot be used by any of the existing business units, such as to pay debt, unless there is an equity increase (which are not foreseen) or intercompany subordinate loans (not anticipated, as well). However, it will likely be used into new deals or as dividends. Furthermore, after the reorganisation, the majority of the debt is now in Brisa concession (BCR), which is ring fenced from the entire group and holds 71% of the entire consolidated debt. This means, when investors are analysing Brisa’s debt, it should not be viewed as a whole but rather by business units, particularly

The reserves are for dividends or new investments…

Also has the majority of the group’s debt…

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BCR’s evolution, because the remaining concessions are project financed, being the liabilities non-recoursed to the shareholders and are considered fully financed. Moreover, the ring fenced structure of BCR is after all, very similar to a project finance scheme.

Plus, BCR is the only unit that has a credit rating. In fact, Brisa or any other of the remaining businesses does not have it. So, in our view, investors prefer to lend money to BCR, since it is this company that holds the core business and only after to the holding, Brisa. In case of BCR’s default, the debt holders have priority over shareholders and Brisa’s debt holders. This is one of the reasons why we believe Brisa is holding cash until the crisis fades out, to avoid high interest rates in case of new business opportunities.

Regarding operational costs, Brisa O&M now holds the majority of Brisa’s employees, and is the O&M provider to all concessions, with back to back operational risk transferred contracts.

This reorganization also introduces the possibility of selling stakes of BCR up to 33%, which is a new and alternative method to provide liquidity to the holding company. We believe this could attract investors, which are more interested in getting exposure to high yielding stable growing non listed assets.

And finally, investors should understand BCR is currently supporting the payment of the majority of Brisa’s dividends and in case of BCR’s lock up (by not meeting the financial ratios defined on its financing contracts), Brisa will be unable to keep up with its dividend policy. This is not the current situation, even further, with the significant excess cash at the holding level.

When a trigger event occurs (or in a more severe condition, an event of default), BCR will be prevented from up streaming funds to the parent company, among other things. The cost of debt will increase and in certain situations, if the investment grade rating is not maintained, debt can be accelerated.

All in all, the credit position of the whole group was enhanced with this restructure, particularly BCR, where creditors are now in a more protected and stable environment. Nevertheless, this put more risk into Brisa’s shareholders and despite a “loss”, the ring fenced structure will deliver a more predictable and sustained flow of funds, as well as, a positive impact in the cost of debt and leverage, since all the businesses are now separated (holding, concessionaire, O&M and other businesses).

Option to sell BCR’s stakes…

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From an organizational point of view, Brisa has become more transparent and easily manageable. As a result, the reorganization can lead to a significant value creation process, since BCR can increase its leverage and upstream, in anticipation, additional funds.

2. Valuation

Our base case valuation, using the sum-of-the-parts (SOTP) method, rates Brisa as BUY, with a price target of 5.35 € (priced as of 31/12/2011), which suggests a 23% upside potential. Moreover, the current trading price implies a dividend yield of 7.14%% and the EV/EBITDA is currently 11.4. Exhibit 1 presents Brisa’s SoTP breakdown.

As we can see, the valuation was divided into five business units, where BCR, AEA, Brisal and NWP represent the four main concessions in Brisa’s portfolio and “Other businesses” includes all the remaining companies within Brisa’s Group. For example, motoring services (such as Brisa O&M or ViaVerde) and car inspections.

Therefore, in order to evaluate the main concessions we used the Adjusted Present Value (APV) model, since the WACC method is not suitable for Brisa’s concessions because it implies the company will manage its capital structure to a target debt-to-value ratio. Empirically, companies with significant debt often pay it down as cash flow improves, thus lowering their future debt-to-value ratios. In our opinion, this is the case of Brisa concessions, and therefore we feel more comfortable with the APV method which will not overstate the value of the

Exhibit 1 - SoTP Valuation EV @ Equity @ Concession EBITDA

€ millions 100% Stake term (Dec. 2011)

BCR 100% 4 250 2 484 1 766 2035 394,3 10,8 APV

AEA Concession 50% 512 414 49 2028 48,2 10,6 APV

Brisal Concession 70% 321 515 ( 136) 2034 13,9 23,1 APV

NWP Concession 100% 225 254 ( 30) 2106 3,2 71,3 APV

Other Businesses 93% 427 17 382 47,1 9,1 APV

Excess Cash 1 056

Total 5 735 3 684 3 087 507 11,4

# shares ex treasury stocks (m) 577

Price target (as of 31/12/2011) 5,35

Current price (€) 4,34

Upside / (Downside) 23%

Source: Nova Equi ty Res ea rch

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tax shields, conversely to the usage of a constant WACC when discounting the cash flows.

Therefore, the rationale behind this idea is that, a company is evaluated as if it had no debt and the discount factor is simply the unlevered cost of equity. However, each period, the value of the tax shields is summed to the respective cash flow, to benefit from its advantages.

DCF assumptions

Our valuation consists in discounting the Free Cash Flows to the Firm (FCFF) using the adjusted present value method (APV) for the several business units. This way, we had to compute the unlevered cost of equity and the inputs used are summarized in the exhibit 2.

Moreover, the above mentioned inputs where calculated using the following assumptions:

• Risk free rate: the 10 year German Bonds where used as the risk free

rate. However, to avoid temporary fluctuations, we did an arithmetic average of the last ten years, instead of using the 3.213% value (as of 05-05-2011).

• Beta: it was computed using a regression between the company and

the MSCI Europe Index for the last two years with weekly data. Then, using the CAPM, we computed the unlevered beta for Brisa and its peers (Abertis and Atlantia). The values assumed for the D/E ratio were the market values. The tax rate changed according to country. Finally, we used the mean of the unlevered betas in our valuation.

• Risk premium: was chosen from Pedro Santa-Clara and Shu Yan

paper1, which assessed the market risk premium.

• Country risk: to determine this value, we chose Damodaran extensive

research2 on this field, where the current Portuguese credit rating (BBB- Fitch and S&P) is the main input. Future changes would require a new update.

• Unlevered cost of equity: we used the CAPM model which

incorporated all the aforementioned points and we came up with a value

1

Pedro Santa-Clara and Shu Yan, 2004, Jump and Volatility Risk Premia: A New Model and Lessons from S&P 500 options, http://www.nber.org/papers/w10912

2

Aswath Damodaran, 2011, Country Default Spreads and Risk Premiums, http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html

Exhibit 2 - Unlevered cost of equity

PT US

Unlevered beta 0,48 0,48

Risk free rate 4,00% 4,00%

Market risk premium 5,80% 5,80%

Country risk 3,00% 0,00%

Unl. cost of equity 8,22% 6,78%

Source: Nova Equity Research

AAA 0,00% AA 0,75% A- 1,73% BBB+ 2,25% BBB 2,63% BBB- 3,00% BB+ 3,60% BB 4,13%

Exhibit 3 - Country Risk premium (2011)

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of 8.22% for Portugal and 6.78% for the U.S., which will be the discount factors in our model.

• Tax shields: we discounted them using the cost of debt to remain

consistent.

Valuation assumptions

As a result, it is important to stress, one of the main assumptions in our model is that the concessions will revert to the state in the end of their contracts without any compensation, since there is not any clause for renewal and there will not be any significant investments outside the current concessions’ portfolio. This means, we used finite-life DCFs to assess the value of the business units. We chose this scenario for our base case scenario since it is the most likely situation at this moment3. Further developments or business diversifications will require a new update.

Therefore, for the main concession (BCR), we are using the DCF until 2035 (concession term), for AEA the DCF until 2028, for Brisal the DCF until 2034 and for NWP the DCF until 2106.

For the real GDP growth in Portugal, we are using the short term the IMF estimates and from 2017 to 2035, we forecasted a potential GDP growth of 1.5%. Our long term CPI estimate stands at 2%.

Regarding the fuel prices, due to their unpredictable behaviour, we expect a continuous rise in the short-medium term followed by a convergence towards the CPI in the long term4. Otherwise, the continuous increase in prices would be unsustainable. We chose an average growth rate of 2.4%, which is in line with the past years however we also performed a broad sensitivity analysis (Please check section 2 – Sensitivity analysis) so that investors could better assess its risks.

Exhibit 5 - Portugal input variables

2011 2012 2013 2014 2015 2016 2017 - onwards (CAGR)

Real GDP growth -1,51% -0,48% 0,90% 1,00% 1,20% 1,20% 1,50%

Fuel prices 5,00% 4,50% 4,00% 3,50% 3,00% 2,50% 2,00%

CPI 2,35% 1,42% 1,42% 1,44% 1,64% 1,79% 2,00%

Source: GDP and CPI: IMF estimates for 2011-2016 and Nova Equity Research for 2017 onwards. Fuel prices: Nova Equity Research for 2011-2016 and U.S. Energy Information Administration (EIA)

3

Even though, our view does not include concession term extensions, we highlight that this assumption can hide significant value. However, due to high uncertainty, we preferred the aforementioned scenario.

4

U.S. Energy Information Administration (EIA), 2011, Annual Energy Outlook with Projections to 2035

Source: Compa ny da ta

2035 2028

2034

2106

BCR AEA Brisal NWP

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The tariffs will growth YoY in line with our estimates for the CPI growth of the previous year, as agreed in the concession contracts. (Please check section 5 – Inflation and tariff analysis)

We have also assumed BCR will recover part of the traffic lost to the shadow tolls. They were not charged until 2010 and made BCR lose more than 50% of its average daily traffic (ADT) in some stretches. In the past 6 months, BCR has recovered at least half of the lost amounts and is expected to continue during the next 12 to 24 months.

A special note for Northwest Parkway since is the only concession outside Portugal. We assumed for the real GDP growth and CPI in the U.S. the IMF estimates until 2016 and from 2017 to 2035, we forecasted a potential GDP growth of 2%. Our long term CPI estimate stands at 2% as well.

Exhibit 6 - US input variables

2011 2012 2013 2014 2015 2016 2017 - onwards _(CAGR)

Real GDP growth 2,76% 2,87% 2,72% 2,73% 2,73% 2,68% 2,00%

CPI 2,17% 1,61% 1,40% 1,66% 1,86% 2,00% 2,00%

Source: IMF estimates for 2011-2016 and Nova Equity Research for 2017 onwards.

The Other businesses were evaluated having into consideration the current portfolio and the forecasts were made mostly in line with the CPI estimates, due to lack of information.

Regarding the market value of debt, we used as a proxy the BCR’s quoted bonds in Luxembourg. However, we realized the book values of the bonds did not differed significantly from its market value. Therefore, given that we did not find material evidence between the book and market values, we assumed the book values in our valuation.

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Sensitivity Analysis

In order to assess the impact of changes in the GDP growth YoY %, Fuel prices growth YoY% and unlevered cost of equity, we performed several variations of our base case scenario (highlighted in red), which can be viewed in the following exhibits:

Exhibit 7 - GDP growth change (%) vs Fuel prices change (%)

GDP growth change (%)

-0,5% -0,3% 0% 0,3% 0,5%

F u e l pr ic e s g ro w th Y o Y % c h an g e

-1% 4,84 5,10 5,50 5,97 6,30

0% 4,70 4,95 5,35 5,81 6,14

1% 4,58 4,84 5,23 5,69 6,01

2% 4,47 4,72 5,11 5,56 5,88

3% 4,02 4,26 4,64 5,06 5,36

Source: Nova Equity research

Exhibit 8 - GDP growth change (%) vs Unl. Cost of equity change (%)

GDP growth change (%)

-0,5% -0,3% 0% 0,3% 0,5%

Un l. Co st o f e qu it y c h an g e (%)

-1,0% 5,50 5,79 6,27 6,82 7,23

-0,5% 5,08 5,35 5,79 6,29 6,66

0,0% 4,70 4,95 5,35 5,81 6,14

0,5% 4,35 4,59 4,96 5,38 5,68

1,0% 4,03 4,25 4,60 4,98 5,26

We draw attention to the fact that, at this point, another downgrade in the Portuguese credit rating would likely change our recommendation from BUY to HOLD due to higher country risk.

Moreover, we would likely to say, we found evidences that high inflation could yield some gains due to Brisa’s relatively high margins.

Also, we believe that in a hypothetical scenario with no traffic growth, Brisa would show resilience given that the majority of its capex is allocated to widening projects which would not be needed.

As a last remark, the worst case scenario for Brisa would be in our view, Portugal leaving the Euro. Brisa’s debt would remain in Euros while its revenues would change to the national currency which we assume would depreciate significantly.

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3. Macroeconomic overview

In 2010, the world economy continued its recovery, with a positive growth of approximately 5%. However, this growth began slowing down during the year, as the governments ceased to pursue additional stimulus packages and started “cutting” its budgets, which did not result in a self-sustainable growth pace. Emerging economies can be referred as an exception and therefore, the recovery is expected to be slower in the so called advanced economies.

For instance, the Euro area had a positive growth of 1.7% vs. -4.1% in 2009. However, conversely to expectations, which pointed to a recovery based on temporary factors, such as adjustments in stocks and stimulus measures, the economic upturn in the EU is evolving as seen in previous recoveries. A first phase sustained by exports, which have increased sharply, will trigger a second phase, which is taking off now, characterized by exports boosting investment. As expected, the job creation will be the subsequent phase, since the labour market reaction to the economic recovery is always slower. Therefore, the employment market remains fragile, given that the temporary incentives have ceased and structural adjustments are underway, particularly in the public sector. Nevertheless, inflation has remained under control (1.5% in 2010) despite the rise in commodities and indirect taxes in some member states. Unfortunately, performance is not the same for every member state and this fact combined with the slowdown of the world activity and the end of temporary incentives hinders the short term outlook for the EU economy.

The Portuguese economy is one of those cases. It is characterized by weak productivity and competitiveness, which combined with an enormous dependence from abroad in both financial and trade terms, has made the Portuguese economy increasingly backed by external debt.

In this environment of contracted economic partners, deterioration of labour force and failure to restructure key sectors, the public finances have been severely affected, forcing the government to resign and ask for external help from the EU, IMF and ECB, due to a sharp rise in the public debt yields. Therefore, Portugal’s GDP is expected to decline -1.5% in 2011, according to IMF estimates, which will be one of the worst performances in the whole world.

Stimulus packages are ending...

Employment market remains fragile...

The recovery is not

homogenous within the EU...

Portugal along with other peripheral countries will continue struggling...

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Other relevant macroeconomic indicators for Brisa are also oil and consequently fuel prices and the car market.

Over the last year the oil price ranged from a minimum of $66 in May and a maximum of $91 in December. This implies a lower volatility than in previous years, namely 2008 and 2009 however, it was still quite unpredictable.

Regarding the Portuguese car market, it has continued to post negative growth rates, approximately -26% in 2009 and – 1% in 2010. This dramatic recovery can be partially explained by the VAT increase announced for 2011, however, in the long term, the car purchase is expected to increase, since Portugal is still below the European Union (EU 15) car ownership average (approximately, 500 vs. 400 cars per inhabitant).

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4. Traffic overview

Exhibit 9 presents the traffic output for our base case scenario. As we can see, Portuguese concessions will struggle in terms of growth in the coming years, however we expect a slight recovery by 2013. Nevertheless, according to the latest Brisa’s guidance, our growth rate remains conservative, particularly in the medium long term. Therefore, in this section we explain our methodology and show the average daily traffic (ADT) results which represent the different set of scenarios from the sensitivity analysis.

Exhibit 9 - Traffic output

2011 2012 2013 2014 2015 2016 2017 – onwards

(CAGR)

BCR -1,01% -0,52% 0,08% 0,63% 1,05% 1,45% 1,60%

AEA -3,52% -1,57% 0,08% 0,63% 1,05% 1,45% 1,50%

Brisal -3,52% -1,57% 0,08% 0,62% 1,05% 1,45% 1,48%

NWP 4,14% 4,59% 3,80% 4,09% 4,10% 4,30% 2,00%

Source: Nova Equity Research

What affects traffic?

We can think of several factors that influence traffic:

• Economic activity (GDP growth)

• Toll tariffs

• Fuel prices

• Car ownership

• Motorway capacity and speed

• Alternative transportation

• Vehicle operation costs, average trip time, origin, generation and attraction factors at origin and destination, such as population and employment

• Population growth

• Networking effects

• ...

However, there is a well defined set of dependencies and interactions between traffic demand behaviour and the evolution of variables such as GDP, motorization rates and fuel prices paid by consumers.

By analysing their past evolution, it is possible to determine for these variables, their role and the weight of their impact when driving the evolution of road traffic demand. This happens because Brisa’s network links the majority of the country.

GDP and fuel prices are considered the main traffic drivers…

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The traffic model

To estimate the traffic behaviour demand, we conducted econometric regressions and concluded that real GDP growth and fuel prices are the major traffic drivers. A panel data of around 96 motorway stretches was used, which exploits 11 motorways of BCR, for the period between 1990 and 2010. This way, we were able to create a traffic demand equation.

Nevertheless, we also took into consideration the capacity of the motorways to consider an expansion (according to the clauses of the concession agreement) whenever the traffic reached its limit so that it could continue its growth whenever possible. Finally, we did some manual tuning to avoid unrealistic situations and to incorporate for instance the impact of the shadow tolls. These modifications are described in Exhibit 10

Exhibit 10 - Significant effects incorporated

Concession Period Description

BCR - A1 2011 - 2012 Positive effect on four stretches due to shadow toll ending on A29

BCR - A4 2011 - 2012 Positive effect on five stretches due to shadow toll ending on A41 and A42

BCR - A33 2020 Airport link construction

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As a last remark, exhibits 12 and 13, show us the historical performance between traffic in BCR and our two main explanatory variables (GDP and fuel prices). We also made a comparison with other concessions which can be viewed on BCR’s appendix, page 29 of this report.

5. Inflation and tariffs analysis

Brisa’s concessions tariffs are regulated in its concession contract and are widely defined in exhibit 14.

According to our analysis, higher inflation could trigger higher price targets and therefore, Brisa represents a safe bet in times of inflation, since it is protected against its increases.

Moreover, the historical rates (please check exhibits 15 and 16), make us believe the deflationary trend seen in 2009 was an exception, and therefore we are assuming for our base case scenario a long term CPI growth of 2% for Portugal and 2% for the US which is in line with both central bank policies.

Exhibit 14 - Tariff formula % CPI

2011 2012 onwards

BCR 100,0% 91,5%

AEA 90,0% 90,0%

Brisal 90,0% 90,0%

NWP 100,0% 100,0%

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6. Estimates overview

Brisa summary

In 2011, Brisa’s revenue growth will mainly rise due to tariffs increase and traffic recovery from the former shadow tolls. Plus, we will also see some gains in efficiency due to the E-toll project5.

Nevertheless, higher interests will likely affect Brisa in the short-medium term, which will decrease its net profit.

Regarding capex, we do not foresee any major investment in the next years, unless Brisa enters into new deals. Exhibit 18 summarizes the capex according to the current portfolio and traffic estimates. Nevertheless, less traffic than forecasted could lower the capex, since some of the widening projects will not be needed. Even so, the several years of heavy capex requirements are over and free cash flow generation after capex will continue in double digit yields.

5_{2011 will be the first full year of operations of the E-Toll project, an automatic payment machine which replaces the}

traditional tolling process and is capable of delivering remote assistance to clients in case of malfunction.

Exhibit 17 - Brisa P&L (Eur millions)

2010 2011 2012 2013

Revenues 674 677 688 698

EBITDA 474 483 490 498

EBIT 52 310 314 317

Net income 741 115 110 108

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Brisa concession (BCR)

BCR is the oldest and largest concession of Brisa’s portfolio (Please check the appendix, for further information about the concessions) and it will account for approximately 81.8% (Eur 399,3m) of 2011 EBITDA.

According to our estimates, the YoY ADT will fall -1.01% in 2011 and -0.52% in 2012. These falls reflect the difficult macroeconomic in which BCR operates. However, it will be better than expected, mainly due to the shadow tolls effect. Since 2010, several shadow tolls became payable and BCR is now recovering part of the lost traffic, namely in A1 and A4. Exhibit 23 summarizes this information.

Our traffic model expects an ADT recovery starting in 2013 and a long term CAGR of 1.6%.

Nevertheless, the revenues will continue its growth due to tariffs increases6, which will offset the decrease in traffic.

The EBITDA is expected to increase in 2011, due to the E-Toll project which expects to save up to 3.5 millions yearly. In the medium term, the EBITDA will remain relatively flat however it will continue its rise in the long term, mainly due to increasing traffic and stable OPEX.

Finally, the Capex will decrease significantly compared to previous years. The concession is already fully built (exception made for the airport link and two platform links). This means, the capex will be mainly for widening and major repairs.

6

Please check section 5 – Inflation and tariff analysis, for further information.

Exhibit 22 - BCR P&L (Eur millions)

2010 2011 2012 2013

Revenues 524 531 535 542

EBITDA 386 399 402 407

EBIT 240 274 272 273

Net income 97 113 106 103

Source: Company data and Nova Equity Research

Exhibit 23 - BCR revenue breakdown

2011 2012 2013

Toll price increase 1,4% 2,2% 1,3%

Organic traffic -3,5% -1,8% 0,3%

Competition effect 2,5% 1,1% 0,0%

Leap year 0,0% 0,3% -0,3%

Total revenue chg 0,4% 1,6% 1,4%

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AEA concession

In comparison with BCR, AEA will account for 5,0% of Brisa’s EBITDA in 2011. The revenues will be significantly affected, since AEA will not benefit from the shadow tolls effect conversely to BCR but it will also benefit from the E-Toll project, which will pull the EBITDA margins in 2011 to 71,4%. The capex will likely remain low until the end of the concession.

Brisal concession

Brisal is the most problematic concession within Brisa’s portfolio since it has the worst performance of all and a negative net present value.

Nevertheless, we expect the revenues to growth in line with AEA however the net profit will likely remain negative until the end of the concession.

In the previous years, Brisal has continuously failed to reach its forecasts, due to the Portuguese recession and because the A29 motorway, which completes the second corridor between Lisboa and Porto, is now payable. This was not foreseen in the concession contract and induced traffic into A1, the parallel motorway.

As a result, this already led to a complaint in the first quarter of this year, which could be worth up to Eur 100m approximately.

Exhibit 26 - AEA P&L @ 50% (Eur millions)

2010 2011 2012 2013

Revenues 34,5 33,8 34,0 34,4

EBITDA 24,0 24,1 24,2 24,5

EBIT 12,2 13,7 13,7 14,0

Net income 1,8 2,1 2,3 2,7

Exhibit 29 - Brisal P&L (Eur millions)

2010 2011 2012 2013

Revenues 26,2 25,7 25,8 26,2

EBITDA 14,7 13,9 13,9 14,1

EBIT -109,3 -5,8 -5,8 -5,7

Net income -133,1 -21,9 -22,8 -23,7

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Therefore, there are several possible scenarios:

• Renegotiation of the contract: in order to avoid the concession’s

default, the state and the banks might renegotiate its terms with Brisal. The state would likely increase the concession expiration and as a result, the banks would easily accept a restructure of the debt, by increasing its repayment period. Under this scenario, we do not expect Brisa to create value from this deal but rather avoid future injections of capital and further losses for the company. At this moment, the renegotiations are on hold, but should start in the end of 2011 or 2012.

• Concession default: if the previous scenario fails, Brisa still has the option to default, which would be the worst outcome for all related parties. Brisa not only losses its investment but also might trigger re financing problems. Brisal’s debt is partially assured by an international syndicate of banks, which might have business relations with the other concessions, such as through the provision of bank guarantees.

However, the banks and the state will not face lightly a default either, as it would send very negative signs to the Portuguese PPP programs. Banks are facing project risk and a default would imply huge write-offs of debts. The Republic of Portugal would not want to have a PPP project defaulting and assume that an almost one thousand million euros project was a failure.

• Dramatic improvement in traffic levels: even though, a strong

improvement in traffic levels would settle the renegotiation disputes, the required ADT CAGR would have to be around 7% for breakeven. We believe this is the most unlikely scenario of all.

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Northwest Parkway concession (NWP)

NWP is expected to continue its recovery however there is still no information available about the completion of the Denver’s beltway. This factor could trigger a second ramp-up stage in our valuation. Still, in 2011, NWP will contribute with only 0.6% for the consolidated EBITDA.

Revenue growth will remain above the Portuguese concessions due to a better macroeconomic environment however, we recall to the fact that Brisa will have to continuously inject money into NWP, whenever it presents a negative result, since it is a mandatory contract covenant.

Regarding capex, we believe NWP will have minimal investments.

As a last remark, since this concession will only yield major cash flows in the medium-long term, this partially explains the large concession period (until 2106). However, the continuously delay to build the Denver’s beltway and the forecasts below expectations, since the project’s inception, made us apprehensive on whether this will be a good deal or not.

Exhibit 30 - NWP P&L (Eur millions)

2010 2011 2012 2013

Revenues 7,9 8,4 9,0 9,6

EBITDA 2,7 3,2 3,7 4,2

EBIT -3,2 -0,4 0,1 0,6

Net income -14,6 -12,7 -10,3 -9,6

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7. Sovereign crisis & Brisa’s outlook

In our view, the current Portuguese high yields will have an impact on two major areas. First, if this situation continues to extend the cost of debt, in its concessions, will be higher due to the credit spreads. So far and despite the strong ring fence structure, the hedging policy, the stable ratings, the re-profiling of EIB debt and the majority of its debt being in fixed rate contracts, there is still floating debt outstanding which might compromise BCR and Brisa’s objectives in terms of earnings and dividends.

Moreover, the price target of Brisa will not only be affect by the slower cash flow growth but also, by the discount rates which will be higher. On one hand, the cost of consolidated debt will increase, as we explained before, and on the other hand, the shareholders will demand a higher return because the risk premium for Portugal is now higher due to risk of default. In other words, shareholders will require a higher spread to mitigate the country risk, unless the market starts to differentiate between company and country risk, which already appears to be the situation, as noted by Fitch and Moody’s in its BCR latest reports.

However, until further news, in our base case scenario, the cost of equity and the cost of debt are expected to remain relatively high. As a consequence Brisa’s price target and shareholders returns will be lower, since they are quite sensitive to these variations (Please check section 2 – Sensitivity analysis, which shows several scenarios for the unlevered cost of equity and its impact on the price target)

Nevertheless, we view the discount rate for the current credit crisis in Brisa’s price target as overestimated and once this situation fades out, it has an opportunity to increase. Still, if this situation continues, Brisa might break the correlation in Exhibit 34, which means Brisa’s valuations, will no longer incorporate such a high country risk present in the Portuguese Republic because Brisa’s debt, particularly in BCR’s case, is under control and presents a higher rating. This would significantly improve Brisa’s price target, despite going into the historical relation which rates the country risk below corporate risk. To conclude, it is important to refer that within Brisa’s group, only BCR is rated by the rating agencies and all the other concessions are project finance schemes, and will not need significant refinancing of debt.

Shareholders might demand a higher risk premium...

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Credit rating sustainability

Despite BCR’s high leverage, we believe the current credit rating does not present high risks of downgrading since the concession is already in a mature stage. This means, in our streamline scenario, the cash flows will likely be used to repay debt and investors (in BCR’s case the holding company – Brisa) since the network is totally completed (exception made for the new airport link). The latest reports from the rating agencies confirm this view and therefore, we are maintaining the current credit rating of BBB+ in our analysis.

In our view, the current cost of debt was 4.36% and will gradually rise until 2013, which is when one of BCR’s bonds matures. Then we assumed a constant value of 5.40%, which was chosen using the historical yield of the 10y bond issued by Brisa. Nevertheless, the interests will likely continue its raise if the following events occur:

• Further downgrades in the Republic of Portugal rating: it is possible that BCR’s rating may be higher than the republic however, BCR inability to totally disconnect itself from the local economy and market circumstances, will expose them to the stresses in the Portuguese debt markets.

• Traffic levels remain subdued in the medium term: continued poor

traffic performance in the medium term would likely lead to a downgrade of the debt.

• More leverage than initially anticipated: if BCR rises more debt and so become more leverage than initially anticipated, it is possible that the rating agencies will downgrade its rating.

Peers comparison

Exhibit 36 - Brisa peers comparison (2011) Exhibit 37 - BCR peers comparison

Brisa Abertis Atlantia BCR Abertis (spanish part) Atlantia

Market cap 2604 11633 9677 Rating BBB+ BBB+ A-

Share price 4,34 15,74 16,12 Outlook Negative Stable Stable

P/E 21,0x 15,74x 12,9x Toll road as a percentage of C.F. (%) 100% 74% 100%

EV/EBITDA 11,4x 9,7x 8,3x Facility length (km) 1094,6 1524 3413

Net Debt / EBITDA 4,6x 5,4x 4,0x Concession term (weighted by traffic) 2035 2023 2037

Dividend Yield 7,14% 5,12% 4,85% Refinance risk Yes Yes Yes

EPS 0,21 1,0 0,8 Next maturity 2013 2012 2014

Source: Bloomberg and Nova Equity Research % of outstanding debt 20% 11% 23%

Net Debt / EBITDA 6,1 4,7-5,0 4,7

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8. Dividend policy analysis

According to investor’s day data, Brisa’s management is committed to the current dividend level (€ 0,31) which is a floor for the next four years and is, by now, in a very attractive level of 7.14%.

After the sale of CCR there is no doubt Brisa is capable of delivering the promised dividends. However it is important to analyse if they are sustainable in the long term. In our view, Brisa will not only be capable of paying this floor dividend but also there is room for extra shareholder remunerations since part of the money from CCR’s sale will be kept as reserves.

The key fact is that the cash at hand from CCR disposal allows for extra shareholders’ returns in the short-medium term, if this cash is not absorbed by new investments or unexpected equity increases (which are not foreseen). Therefore, we believe once the sovereign risk fades out, there will not be any reason for Brisa7 to hold around 500M euros as reserves. Note that thanks to the reorganization of Brisa this amount is entirely separated from the remaining businesses currently in the group, such as the concessions.

Therefore, it could be finally used to boost the dividend yield and trigger yield levels towards 11.1%, if the 500M euros are distributed in a five year span or 9.64% if it is distributed during 8 years. Moreover, a step by step approach

7

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would be more realistic due to the current macroeconomic environment and debt market. According to our peers’ comparison, this would make Brisa one of the most attractive dividends play in the sector

As a result, we consider the current dividend yield already very attractive given the current market price however the likely scenario of an additional upside in dividends payout, combined with an extended buyback8 programme makes Brisa even more attractive particularly for risk averse investors.

8

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9. Company overview

Company description

Brisa Auto-Estradas de Portugal SA (Brisa) is a Portugal-based holding company engaged in the transportation sector concessions, namely for the construction, finance, maintenance and operation of tolled motorways. The Company also owns an O&M company (Brisa O&M), an electronic toll collection company (ViaVerde Portugal) and an innovation and research company (Brisa Inovação e Tecnologia). The Group also provides services associated to car parking, road safety and driving assistance both in highways and urban environments. Brisa holds six road concessions in Portugal, namely BCR, Atlantico, Brisal, Douro Litoral, Baixo Tejo and Litoral Oeste, comprising a total of 23 highways and covering 1,705 kilometres. Abroad, its main asset is present in the United States, controlling the Northwest Parkway concession, in Denver.

Shareholder structure

Brisa was founded in 1972 and became a public company in 1997. However, the full completion of its privatisation was only concluded in 2001.

Until now, the José de Mello Group has been the largest shareholder since 2000, currently holding a stake around 32%. Therefore, Mr Vasco de Mello is Brisa’s CEO and chairman since that same year, a position he still holds until nowadays.

Moreover, in 2006, the Arcus European Infrastructures Fund became the second largest investor due a management buyout of part of Babcock & Brown’s European infrastructure business. In our view, this investment is a bet that seeks out predicable and sustainable cash flows and is committed with Brisa’s strategy.

Abertis, which is also an infrastructures group manager like Brisa, was

according to several press reports, interested in a possible merger with Brisa, back in 2007. Nevertheless, in the last conference call, Abertis’ CEO announced once again that the stake is purely a financial investment and continues to be for sale. Opinion already assumed since 2009. So, if Brisa rebounds and Abertis finds interesting opportunities to invest, maybe it can anticipate the sale in the coming months.

Shareholder Structure

(as of 31-12-2010) _{Share %}

José de Mello SGPS, S.A 31,9%

Arcus Infrastructures Fund 19,9%

Abertis Infraestruturas 15,3%

Kendall Develops S.A. 3,5%

N.J State Pension Fund 2,1%

Treasury shares 3,9%

Free Float 23,5%

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Kendall Develops S.A., is a vehicle investment owned by Banco Privado

Português (a small Portuguese bank which received financial support from the Bank of Portugal) who has continuously experienced financial difficulties. This indicates not only Kendall may be interested in selling its stake to inject money into BPP but also, the creditors of BPP might force Kendall to sell it.

In our opinion, Abertis and Kendall, which represent in total 18.8% of Brisa’s capital, may be influencing Brisa’s stock price negatively. On one hand, the market knows both companies are interested in selling their stakes and therefore, investors might be cautiously waiting for these companies to sell them, so that they can buy at a lower price. On the other hand, these companies are not interested in selling at current prices, unless they are forced to. This would apply particularly in the BPP case. Therefore, as long as this situation continues, Brisa’s stock price may remain low, waiting for further developments. Nevertheless, we would like to highlight, that in a situation like this, if the company continues undervalued indefinitely, there is a possibility of a takeover.

Business Development

In order to continue its growth, Brisa is currently looking for new projects to add to its portfolio. According to the latest guidance’s, Brisa is no longer a simple toll operator but rather an infrastructures’ player.

Proof of this new direction is the recently awarded high speed rail connection (Poceirão-Caia) to the ELOS group where Brisa participates with stake of 16%. Moreover, Brisa is also looking into bidding for the new Lisbon airport and ANA’s privatisation through the Asterion consortium9, which would give access to the Portuguese airports operation and maintenance.

However, due to the difficult macro environment described in Portugal, already discussed in this report (Please check section 3), we believe these projects may be delayed for a couple of years.

This means the opportunities for Brisa in Portugal are quite limited, especially now, that the motorway network in considered completed by the Portuguese authorities, which is the core business of Brisa.

Therefore, Brisa also announced an international strategy where the aim is to replicate the CCR value creation model.

9

Brisa holds a stake of 24% and is simultaneously the co-leader with Mota-Engil.

Limited growing opportunities in Portugal…

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Some of the investment criteria includes, manageable country risk (Turkey and India where chosen as top priorities, but U.S.A and Brazil remain alongside), strong local partners, largest or as large as the other partner in terms of equity control, limited investment (Brisa plans to invest under 200M€ for a given market) and perspectives of short to medium term cash flow generation and cash-in option.

So far, Brisa was able to enter in the Indian market through an O&M provider, in partnership with Feedback Venture (FV). The initial investment was 2M USD and a first O&M contract has already been awarded.

In our opinion, both markets (India and Turkey), offer a considerable growth potential (there are more than 50000km of concession roads in India and more than 2000km will be privatized in Turkey), however we are a little bit reserved on whether Brisa will be capable of creating value to its shareholders.

Nevertheless, we do not see this strategy as negative, since we believe the very attractive exit from the CCR deal in Brazil gives management some credibility for additional international investments.

Exhibit 40 - CCR investment (millions at historical average rate)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Cash outflows - Increase shareholding position

126,3 30,7 26,2

Cash inflows - Dividends & sale

23,5 27,7 40,5 41,9 34,6 1181

Total -126,3 -30,7 -26,2 0 23,5 27,7 40,5 41,9 34,6 1181

IRR 28%

Turkey and India elected as top priorities…

Cautions view on Brisa’s future investments…

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Appendix

The national motorway market

The investment in infrastructures, especially in the road sector, has been part of the economic development strategies adopted by Portugal in recent decades. Started in the late 80’s, this public investment became imperative after the adhesion of Portugal to the European Union. Not only, the adhesion generated a significant increase in the road traffic but also made Portugal a beneficiary of the convergence funds, which led to the reformulation of the National Road Plan (PRN2000).

The expected high investment necessary to execute the PRN 2000, led to a financing model based upon public-private partnerships (PPP) and thus to the creation of private highway concessions.

Therefore, with a greater political stability and economic growth, the heavy investment in road infrastructures more than doubled the motorway network over the last decade. Moreover, the development and construction of shadows tolls and availability projects also had a large contribution to the growth in the Portuguese motorway network. This led to changes in the national motorway market shares and over the recent years, the market became more competitive, including new and distinct private groups.

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Additionally, Brisa was awarded with the first Portuguese motorway concession in 1972, which marked the year of its foundation. Until 1998, Brisa main concession, which is nowadays called BCR, represented more than 50% of the national highway network in operation. However, has a consequence of the opening of shadow tolls, its market share decreased to 42%.

As a last remark, even though, Costa da Prata, Beira Litoral e Alta and Grande Porto are categorized as shadow tolls (for comparison purposes), they are paid since late 2010.

Brisa networks

Brisa domestic network is made of 4 concessions: Brisa Concessões Rodoviárias (BCR), Auto-Estradas do Atlântico (AEA), Auto-Estrada do Litoral (Brisal), and Douro Litoral, which represents over 1400km under concession.

Exhibit 43 - National motorway market, by operator (2010)

Private Operators Total km With toll Without toll Main shareholders Shadow tolls Total km

BCR 1095 1013 82 Brisa Costa da prata (A29) 105 Ascendi

AENOR 174 173 1 Ascendi Beira Litoral e Alta 173 Ascendi

AEA 170 144 26 Brisa Grande Porto 55 Ascendi

Brisal 93 93 - Brisa Beira Interior 178 Soares da Costa

Lusolisboa 91 19 72 Ascendi Norte Litoral 113 Cintra

Douro Litoral 57 - 57 Brisa Algarve 130 Cintra

Luso Ponte 24 24 - Ascendi & Vinci Interior Norte 157 Sonae

Total 1704 1466 238 Total 911

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Additionally, a consortium where Brisa participates with a minority stake, awarded between 2007 and 2008, manages Baixo Tejo and Litoral Oeste concessions.

Abroad, Brisa holds a concession in the U.S. called Northwest Parkway (NWP).

Brisa Concessões Rodoviárias (BCR)

BCR is made of 11 motorways, distributed over 1.094 km, of which 1.012,8 km are tolled. It is considered fully built since July 2007 however the new airport link (21.9km) and two platform links are yet to be built.

The concession covers the country from north to south and from east to west and is the backbone of the Portuguese road network, linking the main urban centres and thereby covering the richer and must populated areas of the country. BCR is also considered to have a defensive network nature, due to high commuting, the average trip is 34km and low dependence on heavy traffic, 10% in 2010.

According to the concession contract reviewed in 2008, the concession term is now 2035, which represents three years more than previously agreed. In return, several obligations where renegotiate, particularly in terms of motorway widening and construction of new accesses. Therefore, whenever an ADT of 35000 in 2x2 lanes or 60000 in 2x3 lanes, implies an expansion to 2x3 and 2x4 lanes, respectively.

In terms of growth, the historical performance, weighted by kilometres, can be viewed on exhibit 44.

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Auto-Estradas do Atlântico concession (AEA)

AEA is made of 2 motorways (A8 and A15) and covers a total of 170 km, of which 144km are tolled. This concession is 50% held by Brisa and was completed in 2002. It expires in 2028 and serves the region known as Oeste. In 2008, the completion of Brisal benefited AEA, by inducing demand and a second ramp-up in traffic, mainly through the densification of surrounding roads and the connection to other high capacity road infrastructures.

Auto-Estrada do Litoral concession (Brisal)

Brisal operates the Litoral Centro tolled motorway (A17) along a total length of 93 km. This concession is 70% held by Brisa and the concession is valid for a variable term of 22 to 30 years (2034).

In September 2009, the connection to A29, provided a second motorway corridor linking Lisboa to Porto (A8-A17-A29). This had a positive impact on its traffic growth, and also benefited from A29 being a shadow toll until 2010, which induced traffic from A1 (the competing motorway corridor).

Douro Litoral concession

The Douro Litoral concession will be fully operational in 2011, with the first stretches opening in 2010. Brisa holds 45% of this concession, which includes the construction and operation of 3 tolled motorways, with an extension of 76.2 km and expiration in 2034.

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Fair-value and dividend policy under review...

Brisa Vs PSI 20

Table of Contents

1. Executive summary

Positive

Negative

Investment case

Corporate organization

2. Valuation

DCF assumptions

Valuation assumptions

Sensitivity Analysis

3. Macroeconomic overview

4. Traffic overview

What affects traffic?

The traffic model

5. Inflation and tariffs analysis

6. Estimates overview

Brisa summary

Brisa concession (BCR)

AEA concession

Brisal concession

Northwest Parkway concession (NWP)

7. Sovereign crisis & Brisa’s outlook

Credit rating sustainability

Peers comparison

8. Dividend policy analysis

9. Company overview

Company description

Shareholder structure

Business Development

Appendix

The national motorway market

Brisa networks

Brisa Concessões Rodoviárias (BCR)

Auto-Estradas do Atlântico concession (AEA)

Auto-Estrada do Litoral concession (Brisal)

Douro Litoral concession