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ACS: FY2019 RESULTS (ANÁLISIS BANCO SABADELL)

4Q'19 vs. 4Q'18 Results
Sales: € 10.249 Bn (+7.1% vs. +7.1% expected and +4.7% expected by the market consensus);
EBITDA: € 742.0 M (-3.6% vs. +5.8% expected and -15.2% expected by the market consensus);
Net Profit: € 193.0 M (-13.8% vs. -2.7% expected and -0.9% expected by the market consensus).
FY2019 vs. FY2018 Results
Sales: € 39.049 Bn (+6.5% vs. +6.5% expected and +5.9% expected by the market consensus);
EBITDA: € 3.148 Bn (+7.0% vs. +9.5% expected and +4.0% expected by the market consensus);
Net Profit: € 962.0 M (+5.1% vs. +7.9% expected and +8.3% expected by the market consensus).

The company released mixed FY2019 results at the closing bell: EBITDA slightly below expectations, but working capital above. EBITDA came in-2% below our estimate (although +3% above the consensus, in our view, outdated). The lower EBITDA growth is explained by the poor 4Q’19 of Dragados (16% of our T.P.) that reported only 2.2% of EBITDA margin (vs. 8.1% in 4Q’18) due to its more conservative risk profile in the construction activities, higher weight of the US in the sales mix (where margins are tighter) and some cost overruns in some projects in the US to be solved. Net Profit totaled € 962 M, slightly below expectations (€ 987 M BS(e) and € 998 M consensus), although in line with the company’s estimate of exceeding € 950 M. The total order backlog grows +7.7% (+6% adjusted for FX), +9.5% in the Infrastructure business (76% of EBITDA).
Operating cash flow (excluding the one-off in BICC) before working capital and operating CAPEX increased by € 392 M (+18% vs. 2018), although adjusted for the dividend in Abertis and an increased tax burden (€~+100 M, which we do not consider recurring) the improvement would only be € 60 M (+3% vs. 2018). On the positive side, we highlight working capital, which showed a better performance than expected, increasing by €~1.2 Bn (vs. €~1 Bn BS(e)), with stable factoring, which means working capital consumption on the year of €-193 M (adjusted for factoring; vs. €~1 Bn in 2018). Lastly, net debt came in at € 54 M (vs. € 3 M cash in 2018) as a result of increased operating CAPEX levels (€~+160 M), financial investments/divestments, shareholder remuneration, leasing payments (IFRS 16), the one-off in BICC (€ 248 M of funding on the year) and the reclassification of some assets to “Held up for sale” (mostly energy infrastructure assets from the Industrial Services division).
We think the surprise from Dragados could lead to a slightly negative market reception despite underperforming the IBEX by -16% on the year. There will be a presentation (and conference call at 12:00 (CET)), where we expect further details on the prospects for Dragados. BUY. Target Price: € 39.95/sh (upside 28.42%)