This research has been prepared by Merrill Lynch as part of its services to its clients, and is intended to be used only by those clients when

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1 This research has been prepared by Merrill Lynch as part of its services to its clients, and is intended to be used only by those clients when provided through other means, and in the context of the overall client relationship, including individual recommendations and advice that ML provides to its clients. It is provided here pursuant to the requirements of Article 69 of Consob Regulation (as amended by Consob Resolution 13616) and is not intended for use by any other person in making investment decisions. ML assumes no responsibility, and will not have any liability, to any such person who may have access to the research. This research is subject to change after the date thereon and may not be current at later times. Merrill Lynch assumes no responsibility to update such research.

2 Comment Italy Toll Road Operators 20 May 2005 Paul Butler (44) Anthony Bor (44) Samantha Gleave (44) Autostrade Attractive Investment Opportunities Reason for Report: Initiation of Coverage BUY Volatility Risk: MEDIUM Price: EUR Month Price Objective: EUR27 Date Established: 20-May-2005 Estimates (Dec) 2003A 2004A 2005E 2006E 2007E Net Inc Attrib. to Ord Sh hold EPS - Adjusted Basic P/E DPS Declared (basic) Gross Yield % Free CFPS (basic) (0.8) (1.7) Price/FCF (27.1) (12.4) Opinion & Financial Data Investment Opinion Local: B-1-7 Mkt. Value (EUR mn)/ Shares Outstanding (mn): / Book Value/Share (Dec-04): Price/Book Ratio: 8.26 ROE 2005E Average: 51.2% Net Debt/Net Equity: 491.1% Est. 5 Year EPS Growth: 18.8% 2005E P/E Rel. to Mkt: 121% Stock Data 52-Week Range Local: Symbol / Exchange Local: AOSTF / Milan Bloomberg / Reuters: AUT MI / AUTS.MI Exchange Rate: EUR0.79/USD Free Float: 42% All figures are in Euro except where otherwise noted. Highlights: Initiate coverage on Autostrade with a Buy recommendation: Price target of EUR27, implies a potential upside of +31% from current levels. We estimate fair value at EUR27.14 from our DCF valuation with equivalent constant WACC of 6.7%. Differentiating Features of Autostrade Include: A controlling shareholder interested in maximising cash returns, large and attractive low risk investment opportunities in the existing network and margin improvement opportunities. Increase in Dividend Payout and Capital Structure: Since the LBO of Autostrade by Schemaventotto (Benetton family led) dividend payout has increased and the capital structure has improved to more efficient levels. We expect this trend to continue. Low Risk Investment Opportunities: We believe Autostrade s significant investment opportunities (EUR9.3bn until 2012) have lower risk than most new toll road investments, as compensating tariff increases are agreed and most of the investment is to increase capacity in saturated sections of the network where there is likely to be high traffic growth. Risks to Our View Include: A further decline in traffic growth rates, significant delays in construction, an adverse change in the tax structure and an economic upturn, as Autostrade trades with defensive characteristics. News flow regarding minor investments and speculation of a merger with Abertis may affect the share price in the short term. Next News Flow: H1 results (9 Sept) when Autostrade intends to convert to IFRS. Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 10. Analyst Certification on page 7. Price Objective Basis/Risk on page 6. Global Securities Research & Economics Group RC# Global Fundamental Equity Research Department

3 Autostrade Conclusion: +30% Potential Upside Our Buy recommendation and price target of EUR27.00 is based on a DCF analysis with dynamic WACC equivalent to a constant WACC of 6.7%. This provides an upside versus current levels of 31%. n Strategic View We believe Autostrade has a controlling shareholder with an interest in maximising cash returns. It has an attractive set of low risk investment opportunities until 2012, and there are margin improvement opportunities. Since the leveraged buyout by the Benetton family-led Schemaventotto in 2003, dividend payout has increased and capital structure has improved to more efficient levels. We expect the controlling shareholder will maintain its interest in maximizing cash returns from the business, and we consider this is positive for other investors. Autostrade has EUR9.3bn worth of investment opportunities in and around the existing network over the next seven years. The tariff increases to compensate this investment have been agreed. Most of the investment is for expansion of currently saturated or congested sections of the network, hence we believe there will be strong traffic growth once the new sections open. We believe these investment opportunities are low risk as they are on the existing network, there is low traffic growth risk and tariff increases are visible. Autostrade s EBITDA margin has improved by 11% over the past five years due to staff reductions, efficiency improvements and revenue growth. We believe there is ample opportunity to continue this improvement through similar means. However we do not include the full potential in our estimates. n Tactical View In the short term the following issues may drive the share price: 1. Merger Speculation: There has been speculation in the Italian press of a potential merger between Autostrade and Abertis. Abertis owns a 7% stake in Autostrade through the Benetton controlled holding company Schemaventotto. In our view a merger at current levels would dilute value for Autostrade investors. 2. News Flow regarding minor investments such as Europpass (Austrian heavy vehicle tolling) and Impregilo (Italian construction) may have short-term influence on share price. 3. IFRS: The change to IFRS for H results (9 Sept) should not affect cash flow, but may have some affect on reported profit. We obtain a similar valuation with our APV, however our DDM approach gives a higher valuation. This is due to differences in the cash flow profiles of FCF and dividends. Specifically we assume that Autostrade will pay dividends at current levels or higher through the next seven years to 2012, during which time there are high levels of investment in the network consuming FCF. Our IRR to equity is 11.1%, compared to our estimate of levered cost of equity of 8.5%. This suggests a positive value creation spread of +2.6%. n Key Assumptions Over the next three years we assume lower traffic growth for Autostrade compared to other toll roads, because of its lower spare capacity (Table 1). Table 1: Autostrade Assumptions CPI (%p.a.) Risk Free Rate (%) Beta (unlevered) Market Equity Premium (%) Cost of Debt (Rel to Rf, bp) Net Debt / Capital Employed (%) Tax rate (%) Traffic growth (%p.a.) Rev growth (CAGR, %) EBITDA Margin (%) Source: Merrill Lynch n Sensitivity Analysis Our analysis suggests Autostrade is more sensitive to inflation than other toll roads (Table 2). This is difficult to assess because tariff increases are based on the Italian Government s inflation targets rather than actual inflation. After five years Autostrade can apply an adjustment for the difference between target and actual inflation, on the main concession (Autostrade Italia). The greater sensitivity to inflation arises when the spread between the government s targets and actual inflation changes. We expect that target inflation will tend to understate actual inflation, and we believe the spread will widen if actual inflation increases. This will give Autostrade greater sensitivity to inflation. Autostrade is highly sensitive to cost of capital and traffic growth assumptions. Table 2: Autostrade Sensitivity Analysis Value Driver Change in Value Driver Effect on Fair Value (%) Sensitivity Long term average inflation +1pp -7 Low Long term average real rates +1pp -22 High Beta (unlevered) High Cost of Debt +1pp -7 Medium Net Debt / Capital Employed +10pp +2 Low WACC +1pp -27 High Traffic growth +1pp +25 High EBITDA margin +1pp +3 Medium Source: Merrill Lynch Research (Continued) Refer to important disclosures on page 10. 2

4 Autostrade Profile Autostrade has a toll road network in Italy of approximately 3400km or 61% of Italy s toll road network. The majority of this is held through Autostrade Italia with a concession running until 2038, smaller concession are held in other operating companies (Table 3). The concession operates under a toll system with customers paying at a booth with cash, card or the Telepass system. Chart 1: Map of Autostrade Concessions A23 A26 A4 A27 Milan Venice A1 Turin A13 A12 A6 Bologna Genoa A11 Florence Ancona A12 A14 A1 A12 Pescara Rome A1 Naples A14 A16 A3 Bari Autostrade Group Network Italian Network Autostrade also collects revenue from 246 service areas on the network. Autostrade receives approximately 4% of revenue from other businesses including road design, construction and maintenance in Italy, automatic toll collection in Austria and a 25% share in the M6 Toll Road (UK). Table 3: Features of Autostrade Toll Road Concessions Autostrade Tangenziale di SAM Torino-Savona SAT Strada dei Mont Blanc RAV Feature Italia Napoli (Meridionali) (Tirrenica) Parchi Tunnel (Valle d Aosta) Concession End Shareholding 100% 100% 58.9% 99.9% 93.2% 60% 51% 29.6% Description (52% of Italy s toll roads) Urban toll road Naples Naples-Salerno Turin-Savona Livorno- Civitavecchia Rome-Pescara & Teramo Tunnel Italy-France Mont Blanc Length (km) (37km in use) (27km in use) Tariff Policy CPI linked CPI linked CPI linked CPI linked CPI linked CPI linked Regulated CPI linked Vehicle Km Traveled (millions) 46, Refer to important disclosures on page 10. 3

5 n Strategy Autostrade is focused on managing and developing its toll road business in Italy by: 1. De-bottlenecking and expanding the existing network. Autostrade made agreements with the regulator in 1997 and 2002 to invest EUR8.9bn in the network. 2. Reducing costs through more efficient maintenance and increased usage of automatic toll collection. Autostrade has targeted EBITDA margins of 70% and 75% for 2008 and 2012 (64% in 2004). 3. Leveraging experience in opportunities outside Italy (Europpass automatic tolling in Austria). Table 5: Autostrade Shareholder Structure Schemaventotto Shareholders in Schemaventotto: - Edizione Holding 60% - Abertis 13.33% - Fondazione CRT 13.33% - Unicredito Italiano 6.67% - Assicurazioni Generali 6.67% % 50.1 Banca Popolare di Milano Scrl 4.6 Banca Intesa SpA 3.0 Free Float 42.3, Reuters Table 4: Autostrade Key Historic Events Date Event 1982 Autostrade Group is formed to manage a network of 2600km Floated on the Italian Exchange and joins the MIB30 index Italian Government sells remaining 87% of Autostrade. Benetton family led Schemaventotto obtains 30% holding Favourable renegotiation of agreement with regulator (ANAS). Feb 2003 Schemaventotto through subsiduary Newco28 acquires 54.1% of Autostrade for EUR6,459m (EUR10.00 per share), for a total stake of 84%. July 2003 Autostrade is restructured in Progetto Mediterraneo creating tax advantages. Sept 2003 Autostrade is merged into Newco28. Newco28 is renamed Autostrade SpA and is listed on the Italian Exchange. Following the merger Schemaventotto owns 62.2%. Dec 2003 Birmingham M6 toll road opens (AUTS 25% holding). May 2004 Bond issue of EUR6.5B (rated A & A3 by S&P and Moody s). July 2004 Schemaventotto sells 10% to pay down debt (retains control of AUTS with 52% holding). Jan 2005 Schemaventotto sells 2% to pay down debt (retains control of AUTS with 50.1% holding). The pact between Schemaventotto shareholders to vote as a block is renewed until the end of n Ownership Structure The Benetton Family controls Autostrade through the Edizione and Schemaventotto holding companies. We expect they will focus on maximizing cash returns from Autostrade to fund their other business ventures (telecoms, catering, etc). We view this as positive for the interests of other shareholders. Autostrade Key Value Drivers In our view Autostrade s main value drivers are traffic growth, facilitated by adding capacity in saturated parts of the network and margin improvement. n Revenue Growth Tariffs and Traffic Tariff Structure The tariff structure is defined in Autostrade s concession agreements with ANAS the regulator. The tariff increases are based on inflation, productivity target, quality improvement and new investment (Table 6). There is also an adjustment for the difference between the government s inflation target and actual inflation. This is applied five years in arrears. Tariff increases on Autostrade Italia will benefit from a cumulative 20% tariff increase over the next seven years to compensate for investment in the network. Table 6: Autostrade Italia Tariff Increases (%) Inflation target * 1.70* Adjustment for actual CPI Productivity target Quality improvement factor * 0.80* Increase for new investment * 2.96* Total increase , Merrill Lynch Research* Traffic Growth Autostrade has enjoyed traffic growth of approximately 2x GDP for the past decade (Chart 2). We believe the slowdown in growth over the past few years is due to lower economic growth and increasing saturation of the network. We estimate that the capacity enhancement works over the next seven years could facilitate growth at 2% until 2012, dropping to 1.5% until 2020 and 1% from then onwards. Refer to important disclosures on page 10. 4

6 Chart 2: Autostrade Traffic Growth vs. GDP Growth Chart 4: Autostrade Operating Cost Structure Depreciation 22% Payroll 39% General & Other 21% Maintenance 18% GDP growth Traffic growth, Reuters n Margin Improvement EBITDA margin has improved significantly over the past five years (Chart 3), and management has targets of 70% and 75% by 2008 and The past improvement has come from staff reductions, increasing use of automatic toll collection, more competitive contracts with suppliers and revenue increases from traffic and tariff growth covering fixed costs (Chart 5 and Chart 6). We expect management will continue to improve margins through further staff reductions and efficiency improvements. However, we consider that the traffic growth required to meet management s targets may be constrained by capacity. Chart 3: Autostrade EBITDA & EBIT Margins % Source: ASF EBITDA Margin (%) EBIT Margin (%) The cost base is mostly composed of depreciation, labour and maintenance (Chart 4). Depreciation includes economic depreciation of asset deterioration and the financial depreciation to account for the limited life of the concession. Source: ASF Chart 5: Autostrade Employees per Volume of Traffic and Network Length Employees / 100m km traffic Employees / 100 network km Chart 6: Autostrade Manual Toll Collection Transactions Transactions (millions) n Value Enhancing Investment Autostrade has an EUR9.3bn investment plan over the next seven years. It includes new toll roads and widening of existing toll roads. The compensation for the investment is additional revenue from a 20% tariff increase on the Autostrade Italia network and the traffic growth on the Refer to important disclosures on page 10. 5

7 new capacity. However we understand that there have been significant delays due to local government approvals and other issues. This in turn delays the tariff increases, slows traffic growth due to saturation and as the concession length is fixed there is less time to collect revenues. However, it also delays capex. We estimate the maximum affect to value per share at +/-1% for each year of delay, if the delay does not significantly affect traffic growth. Table 7: Autostrade Investment in Italy Project Investment (EUR billion) Timeline Variante di Valico Florence Access Bologna Access Genoa By-Pass A14 Adriatic Corridor A4 Milan-Bergamo A9 Lainate-Como Others State Subsidies (1.1) Total 9.3 n Capital Structure and Dividend Policy Debt increased dramatically in 2003 with the leveraged buyout by the Schemaventotto investors (Chart 7). We estimate this transaction increased enterprise value by over 40%. Chart 7: Autostrade Net Debt / EBITDA Net Debt / EBITDA Autostrade has a dividend policy of a 70% payout ratio (Chart 8). We believe this is driven by the controlling shareholders cash needs, and we expect the policy to continue and potentially increase Chart 8: Autostrade Dividend Payout Ratio Div / Net Profit 80% 70% 60% 50% 40% 48% 53% 50% 51% 77% 68% Price Objective Basis and Risk Our price objective of EUR27.14 is based on a discounted cash flow analysis with a dynamic WACC that is equivalent to a constant WACC of 6.7% (Table 8). We believe this is the best approach to account for the unique cash flow profile of a business with finite concession life and strong cash flow growth. Table 8: Autostrade Valuation Fair Value Variance Discount rate DCF % 6.7%* (WACC) APV % 7.3% (Ku) DDM % 8.5% (Ks) IRR 11.1% Source: Merrill Lynch We believe the risks to our view are: 1. Lower Traffic Growth: Traffic growth on Autostrade s network has been greater than GDP growth over the past decade. A deterioration of traffic growth below these levels would be negative for value. 2. Construction Delays: Further significant delays to investment in the existing network could increase construction cost, delay tariff increases, constrain traffic growth due to saturation and reduce the remaining years of available cash flows. 3. IRAP Tax Changes: The Italian government is under pressure from the EU to change the IRAP tax. We understand one potential scenario for Autostrade is a 50% reduction in the IRAP tax and an additional 1% revenue tax. We estimate this particular scenario would be value neutral for Autostrade, but there can be no guarantee of the effect of the final solution. 4. Europpass Buyout: ASFIAG (Austrian road operator) is seeking to exercise an option to purchase 100% of Europpass. Europpass operates automatic tolling of heavy vehicles on the Austrian road Refer to important disclosures on page 10. 6

8 5. network. Autostrade is currently negotiating a price. There is an issue of the rights to the technology that could have implications for Autostrade s ability to use the technology elsewhere. 6. Economic Upturn: Autostrade s defensive characteristics suggest it may under perform relative to the market in an economic upturn. Analyst Certification I, Paul Butler, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. Table 9: Autostrade Profit Forecast Year Ending 31 Dec (EURm) 2003A 2004A 2005E 2006E 2007E 2008E 2009E 2010E Net toll receipts 2,329 2,444 2,562 2,718 2,886 3,078 3,277 3,489 Other sales and service revenue Other revenue Revenue 2,570 2,882 3,021 3,197 3,387 3,601 3,823 4,060 External costs of production Other costs Payroll Capitalised expenses 23 Operating Expenses ,040-1,083-1,124-1,168-1,216-1,266-1,319 EBITDA 1,596 1,842 1,938 2,073 2,219 2,384 2,557 2,741 Depreciation Goodwill amortisation Provisions Group Operating Profit 883 1,001 1,161 1,268 1,385 1,521 1,663 1,816 Equity investment income TOTAL OPERATING PROFIT 894 1,006 1,167 1,274 1,391 1,527 1,669 1,822 Interest income Interest expense Interest capitalized Pre-Exceptional Pretax Profit ,001 1,138 Net exceptionals PRETAX PROFIT ,001 1,138 Tax Minorities Attributable Ordinary Dividends Pre-exceptional EPS - Basic Source: Merrill Lynch Estimates Refer to important disclosures on page 10. 7

9 Table 10: Autostrade Balance Sheet Year Ending 31 Dec (EURm) 2003A 2004A 2005E 2006E 2007E 2008E 2009E 2010E Fixed Assets Net tangible Fixed Assets 6,418 6,818 7,613 8,441 9,252 10,044 10,817 11,572 Investments Net intangible Fixed Assets Goodwill 4,380 4,067 3,754 3,442 3,129 2,816 2,503 2,190 Total Fixed Assets 11,571 11,359 11,866 12,408 12,934 13,444 13,936 14,412 Net Current Assets Cash & equivalents 1,084 1,149 1,149 1,149 1,149 1,149 1,149 1,149 Tolls receivable Other current assets Deferred tax assets 1,447 1,537 1,445 1,367 1,293 1,220 1,149 1,079 Inventories Accounts payable Other current liabilities Total Working Capital 1,193 1,254 1,216 1,124 1, Total Net Current Assets 2,276 2,403 2,365 2,273 2,184 2,095 2,008 1,920 Total Assets Less Current Liabilities 13,847 13,762 14,231 14,681 15,118 15,539 15,944 16,332 Gross Debt Borrowings < 1 Year Borrowings > 1 Year -8,549-9,505-9,902-10,140-10,126-11,416-11,700-11,971 Total Gross Debt -9,428-10,115-10,513-10,751-10,736-12,026-12,310-12,581 Deferred tax liabilities -1, Provision for cost of restoration or replacement of assets to be relinquished -1,168-1,326-1,476-1,626-1,776-1,926-2,076-2,226 Pension Provision (payroll related) Other provisions Total Provisions -2,842-1,821-1,989-2,217-2,450-2,689-2,933-3,183 Minorities Net Assets 1,177 1,430 1,333 1,317 1, Ordinary Shareholders Funds Ordinary Share Capital Reserves Total Ordinary Shareholders Funds 1,177 1,430 1,333 1,317 1, Source: Merrill Lynch Estimates Refer to important disclosures on page 10. 8

10 Table 11: Autostrade Cashflow Year Ending 31 Dec (EURm) 2003A 2004A 2005E 2006E 2007E 2008E 2009E 2010E Operating Profit 883 1,001 1,161 1,268 1,385 1,521 1,663 1,816 Depreciation Goodwill Amortisation Change in Working Capital (Inc)/Dec -1, Change in provisions & other creditors 1,460-1, Cash from Operations 1, ,933 2,179 2,323 2,491 2,662 2,848 Net Interest Paid Tax Paid Dividends from Associates Cash Flow Post Interest & Tax 1, ,161 1,358 1,458 1,481 1,587 1,704 Sale of Fixed Assets Sale of Subsidiaries/Other Cash Flow after Disposals 1, ,161 1,358 1,458 1,481 1,587 1,704 Purchase of Fixed Assets -1, ,067-1,127-1,135-1,146-1,154-1,163 Acquisitions -6, Other (Incl Finance Leases and HP) Cash Flow after Investment -6, Shares Issued Ordinary Dividend Special Dividend , Total Dividends , Change in Net Debt Dec/(Inc) , Source: Merrill Lynch Estimates Refer to important disclosures on page 10. 9

11 Important Disclosures Investment Rating Distribution: Transport/Infrastructure Group (as of 31 March 2005) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy % Buy % Neutral % Neutral % Sell % Sell % Investment Rating Distribution: Global Group (as of 31 March 2005) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy % Buy % Neutral % Neutral % Sell % Sell % * Companies in respect of which MLPF&S or an affiliate has received compensation for investment banking services within the past 12 months. FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium, and C - High. INVESTMENT RATINGS, indicators of expected total return (price appreciation plus yield) within the 12-month period from the date of the initial rating, are: 1 - Buy (10% or more for Low and Medium Volatility Risk Securities - 20% or more for High Volatility Risk securities); 2 - Neutral (0-10% for Low and Medium Volatility Risk securities % for High Volatility Risk securities); 3 - Sell (negative return); and 6 - No Rating. INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend considered to be secure); 8 - same/lower (dividend not considered to be secure); and 9 - pays no cash dividend. MLPF&S or an affiliate was a manager of a public offering of securities of this company within the last 12 months: Autostrade. The company is or was, within the last 12 months, an investment banking client of MLPF&S and/or one or more of its affiliates: Autostrade. In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for sale: Autostrade. MLPF&S or an affiliate has received compensation for investment banking services from this company within the past 12 months: Autostrade. MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company within the next three months: Autostrade. The analyst(s) responsible for covering the securities in this report receive compensation based upon, among other factors, the overall profitability of Merrill Lynch, including profits derived from investment banking revenues. Additional information pursuant to Section 34b of the German Securities Trading Act: Merrill Lynch and/or its affiliates was an underwriter in an offering of securities of the issuer in the last five years: Autostrade. Copyright 2005 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). All rights reserved. Any unauthorized use or disclosure is prohibited. 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The information herein was obtained from various sources; we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments"). Officers of MLPF&S or one of its affiliates may have a financial interest in securities of the issuer(s) or in related investments. This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk. Refer to important disclosures on page