Tecnicas Reunidas: Will margins come back in 2019?
After the blow of 3Q17 results from Tecnicas Reunidas (TRE) last Friday, the shares fell by 17% on Friday (vs -0.4% for the Ibex). With the guidance for lower margins in 2018E we have revised our model and keep a NEUTRAL with our FV down by 10% to Eur25/sh. The outlook for the next couple of months is challenging, with TRE’s guidance implying a 1% EBIT margin in 4Q17E. The indications of an EBIT margin in the range of 1.5% to 2.5% for 2018E with the improvement coming only in 2H18 suggests that over the next 12 months there won’t be any major signs of a recovery. TRE’s CEO, Mr. Juan Llado, said on the conf. call that he expects an improvement to come in 2019E, with EBIT margins returning to above 4%. This would be supported by the quality of the projects the company expects to start in the coming months and using idle capacity it currently has. While this message is reassuring, the visibility on it is, at this point, very low. Given this situation we are using TRE’s guidance for 2018E and while we assume a margin recovery in 2019E, we have used an EBIT margin of 3.5%, which is below long-term guidance.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.
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