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TÉCNICAS REUNIDAS: 1H’20 RESULTS (ANÁLISIS BANCO SABADELL)

2Q'20 vs. 2Q'19 Results
Sales: € 927.3 M (-28.8% vs. -22.9% BS(e) and -23.3% consensus);
EBITDA: € 20.7 M (-21.9% vs. -16.6% BS(e));
EBIT: € 9.4 M (-44.0% vs. -38.1% BS(e) and -11.9% consensus);
Net Profit: € 4.6 M (-51.1% vs. -76.6% BS(e) and -26.6% consensus);
1H'20 vs. 1H'19 Results
Sales: € 2.108 Bn (-4.9% vs. -1.4% BS(e) and -1.7% consensus);
EBITDA: € 56.1 M (+20.9% vs. +23.9% BS(e));
EBIT: € 33.1 M (+20.8% vs. +24.5% BS(e) and +40.5% consensus);
Net Profit: € 11.7 M (-12.7% vs. -30.6% BS(e) and +4.5% consensus);

The company has released worse 2Q’20 results than expected by the consensus in all business lines, but in line with our EBIT margin estimate, which is key and came in at 1.01% in 2Q’20 vs. 2% in 1Q’20 and vs. 1.48% BS(e). We play down the fact that sales came in -7% below our estimate and that of the consensus, as this would be due to stoppages in 2Q’20 that we believe will be recovered in the 2H’20. On the operating level, EBIT came in -36% below the consensus estimate and -9% BS(e). That said, with an accumulated margin of 1.57% in 1H’20 (vs. 1.56% BS(e) and 1.77% consensus), we believe it is likely that our estimate of 1.85% for the full year will be met, but it will be difficult for the company to meet the consensus estimate of 2.39%, meaning that the latter will have to cut its EBIT estimate by around -30% for 2020 and -20% for 2021-22. Below the EBIT line, we highlight a lower number of financial items, which allows the company to meet our Net Profit estimate, but not that of the consensus.
Very negative cash data, which came in at € 154 M (vs. € 260 BS(e) and 236 consensus), meaning a -63% drop vs. 1Q’20 or € 263 M less (39% market cap). TRE justifies this fact with the payment/collection rescheduling but we are concerned about such a sharp reduction, as the improvement seen in 1Q’20 through working capital (€ 120 M BS(e)) has been used this quarter and the worst suspicion is that collections would remain at a standstill, which is worrying, in our view, as we expect a recovery up to € 381 M at the end of the year (vs. 277 M consensus). We reiterate that despite the recent debt refinancing, TRE still has € 215 M of short-term debt its balance sheet that we assume will mature over the next 12 months.
Lastly, the order backlog came in at € 10.1 Bn (vs. ~ € 9.9 Bn expected following the absence of contracts awarded in the 2Q’20), meaning a –7% drop from € 10.915 Bn seen in the 1Q’20.
TRE did not specify a new guidance for 2020, as it considers it a complicated year and only outlined that they will recover growth and margins as the pandemic eases in the countries where the company operates.
Awaiting the company’s comments at the conference call to be held at 16:00 (CET), we expect a negative reaction, as the results disappoint the consensus. In any event, at current levels, the share price yields upside based on our estimates (-33% vs. consensus in EBIT in 2020 and -21% in 2021/2022) and we do not rule out a new rise after these results released today. Note that following a -52% drop to March’s lows (-37% vs. IBEX), the share price has only recovered 25% of the ground lost (vs. 28% IBEX), also showing a negative comparison with crude oil prices (that have recovered 60% of the ground lost to lows). BUY, T.P. € 18.95/sh. (+50.40% upside).