EUR 200.00 For Business Accounts Only

ACS: PRICES IN AN OVERLY ADVERSE SCENARIO (ANÁLISIS BANCO SABADELL)

Prices In an Overly Adverse Scenario. BUY.
ACS fell yesterday by -3.5% (whereas the IBEX rose by +6.5%), having accumulated a drop of -58% since 20 January, when the disruption from the coronavirus outbreak started. The most significant events from the past few days do not justify this correction: (i) The announcement of discontinued operations in Middle East (BICC), (ii) The drop in Dragados’ margins in its FY2019 results, (iii) and the impact from COVID-19 on the global level, where in principle we expect a limited negative impact. We believe that the current situation of uncertainty and the economic slowdown expected will have an impact on ACS’ P&L statement in 2020, although in principle it will be not so significant (for the time being) and especially from its Spanish businesses (14% of sales). We would also expect fewer awardings in 2020. Meanwhile, we would not understand the market’s possible doubts on the company’s capacity to face its debt maturities (and refinancing capacity) as a result of the scenario of uncertainty and economic recession that is looming, as the company’s leverage currently stands at levels of 1x NFD/EBITDA (including factoring). Although in 2020 the company will face debt maturities totalling € 2.78 Bn (including debt issuances and banking financing) plus € 2.28 Bn in factoring (total € 5.1 Bn/ 43% of total gross debt including factoring), we do not expect repayment/refinancing problems this year, as ACS’ current cash position is €~8 Bn and has credit lines worth € 1.6 Bn in ACS Corporation and € 2.9 Bn in Hochtief. As for Abertis (~15% of our T.P.), we do not expect any problems linked to debt repayments/refinancing in the short-term and, there is no other recourse to ACS stemming from debt obligations. Even assuming a value of € 0 in Abertis, according to our estimates, this would not represent more than € 7.5/sh. in ACS, when the company has accumulated a drop of €~22.00/sh. thus far this year. With this in mind, we believe the stock is pricing in an economic scenario that we are not assuming in our estimates, although we must admit that the uncertainty when assessing the evolution of the global economy is very high at the moment. The stock’s current trading levels would be pricing in zero value in Hochtief (26% of our T.P. excl. Abertis, which we value through a DCF model) and Abertis. With this in mind, we change our T.P. to Under Revision, but maintain our BUY recommendation.