Why Greece’s €17B construction backlog isn’t impressing the market

Recovery and Resilience Facility (RRF) projects, new motorways, major railway developments, energy infrastructure, and Public-Private Partnership (PPP) tenders have created an unprecedented pipeline of contracts. The four largest listed construction groups now hold combined order backlogs exceeding €17 billion—a level that would have been unimaginable just a few years ago.

Today, investors largely take it for granted that the major groups will continue to secure new contracts. What they no longer take for granted, however, is the profitability of those projects and their ability to generate meaningful returns for shareholders.

The order backlog remains a key indicator of future revenue visibility. However, investors have increasingly begun to focus on another critical factor: its quality.

A concession project that generates predictable cash flows for 25 or 30 years carries fundamentally different value from a construction contract that is completed within three years and offers relatively limited profit margins. Likewise, an Engineering, Procurement and Construction (EPC) project may deliver attractive returns but also entails significantly higher execution and geopolitical risks.

Analysts now monitor not only the size of a company’s backlog but also the pace at which it is converted into revenue, operating profit and, ultimately, cash. The Backlog Conversion Rate—which measures the speed and efficiency with which a company converts its order backlog into actual revenue—has become almost as important as the backlog itself.

The European Lesson

Europe’s leading infrastructure groups have long been valued not primarily on the basis of their construction activities, but rather on the recurring cash flows generated by their concession assets.

Vinci derives a substantial portion of its value from the airports and motorways it operates. Ferrovial has effectively evolved into an infrastructure investor, while ACS commands a valuation premium due to its exposure to mature infrastructure assets and concession businesses.

Their common denominator is not the size of their order books. Rather, it is their ability to generate recurring cash flows with lower earnings volatility.

GEK TERNA is increasingly being valued as an infrastructure company rather than as a pure construction contractor. The value of the new Kastelli Airport, the Attiki Odos motorway concession and its broader concession portfolio is beginning to outweigh the importance of its construction activities.

Similarly, AKTOR must demonstrate that it can translate its aggressive acquisition strategy into higher returns on capital. AVAX is increasingly being assessed on its ability to sustain strong cash generation, while METKA is attracting growing investor interest thanks to its international expansion and its exposure to higher-margin energy markets.

The Market Remembers

The previous decade demonstrated that large order backlogs can conceal significant risks. Inflationary pressures, rising raw material costs, permitting delays, labour shortages and higher working capital requirements can erode the profitability of even the most attractive contracts.

For this reason, analysts now pay closer attention to EBITDA margins, return on equity, free cash flow generation and dividend policy than to backlog growth alone.

It is therefore no coincidence that discussions in dealing rooms this summer have focused more on concession returns, potential acquisitions, corporate restructuring scenarios and dividend distributions than on yet another announcement of a public infrastructure project.

Greece continues to possess one of Europe’s strongest infrastructure pipelines. Funding from the Recovery and Resilience Facility, energy investments, data centres, network infrastructure projects and new concession opportunities continue to support robust demand.

However, the period in which every new contract automatically translated into a higher market valuation appears to be drawing to a close.

The Greek stock market is now entering a new phase, one in which construction groups will increasingly be assessed in the same way as Europe’s mature infrastructure companies: by the cash they generate, the dividends they distribute and the returns they deliver to shareholders.