EUR 200.00 For Business Accounts Only

FCC: VIRTUAL MEETING WITH THE COMPANY (ANÁLISIS BANCO SABADELL)

Highlights from today’s meeting with the company’s management team:
 In Services (51% EBITDA’21e) the company continues to see growth opportunities in Spain and the UK (FCC’s main and second-largest markets) stemming from non-compliance with European recycling regulations, as well as from the new green taxes in Spain (waste put in landfills or incinerated) that will come into effect over the coming months and the new European plastic regulation.
 In Water (31% EBITDA’21e) FCC still has the target set after the incorporation of IFM (49% Aqualia) of doubling its size (in sales and EBITDA) in 10 years (meaning a +7% CAGR vs. 6% in our estimates, as well as an EBITDA margin of 23%, in line with our estimate). In order to meet this target, the company will have to continue seeking out inorganic growth deals.
 In Cement (6% EBITDA’21e) the company confirms that, despite the falling volumes in 2020 (-10% in Spain according to Oficemen), the division generates positive FCF, and in 2-3 years’ time it will fully amortise the debt (€~175 M) with the cash generated.
 FCC is studying options to price in its real estate assets on the balance sheet (NBV of more than € 450 M) along with its 37% stake in Realia (€ 1.9 Bn GAV), which is trading at -47% NNAV.
 After the finalisation of several concession sales in 3Q’20 (more than € 400 M), the company confirms that it could end the year with a debt level of around 2.3x-2.4x NFD/EBITDA (vs. 2.7x in 2020 and 2.4x BS(e)).
 As for the dividend (€ 0.40/sh.; ~4% yield), the company confirmed that the priority regarding the destination of cash to be generated will be investing in growth in Services and Water, and thus, an increase in yield is not expected in the short-term.
MARKET IMPACT
In general, the messages on the future performance of the Services and Water business were positive (jointly accounting for >90% EV), where the company will focus its growth and where we see relevant opportunities given the regulatory environment. With this in mind, despite the stock’s limited liquidity (13% free float), its good operating prospects, along with the optimisation of its financial position (2.7x NFD/EBITDA’20) and its appealing valuation (despite its +10% YtD performance vs. Ibex), lead us to see >30% upside We reiterate our BUY recommendation.