Tecnicas Reunidas: Improvement but still at a slow pace
We keep our Neutral rating on Tecnicas Reunidas (TRE) after revisiting the story. Our FV moves from Eur25 to Eur24, which gives us 7% upside, but this is not enough for us to become more positive as there is still high uncertainty in the industry which leads clients to delay projects and payments, increasing the risk of cost overruns and working capital mismatches. We recognize momentum is likely to show some improvement in the coming quarters, as margins should be recovering from the very depressed levels seen in 2018. However it’s unclear if that recovery will lead us back to EBIT margins above 4%, as the company has been hinting at, so we stay at 3.4% long term. Another point of caution comes from the evolution of cash flow. Assuming our estimates are correct, the operational cash flow of 2018 was almost zero after a quite negative evolution in 2017. We hope for improved cash flow generation in 2019E as more projects enter the procurement phase, but this also needs to be confirmed as working in the Middle East (which is where most of the backlog is) has proved challenging in terms of working capital.Tecnicas Reunidas is a general contractor company based in Spain. Co. engages in the engineering, design, and construction of industrial facilities for refining and petrochemical, oil and gas, power, and infrastructure and industries sectors worldwide. Co. constructs nuclear plants, conventional thermal plants, and renewable energy and cogeneration facilities for power sector; refineries and facilities for petrochemicals; water treatment, desalination, waste management, air, land, and marine transport facilities; and liquefaction, and storage facilities, as well as oil and gas fields and pipelines. Co. also provides engineering, management and operating services for industrial plants.
Haitong is the first international Chinese investment bank and our goal is to be the primary channel for capital flows into and out of China. During 2015 the Senior Management Team in London was expanded significantly to focus on this objective and to provide a full-service cross-asset markets business coupled with sector-focused investment banking. We work closely with our world-wide network of offices to bring a true depth of understanding to all client situations.
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