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

1Q'20 vs. 1Q'19 Results
Sales: € 1.181 Bn (+29.1% vs. +20.3% expected and +19.0% expected by the market consensus);
EBITDA: € 35.4 M (+77.9% vs. +65.8% expected and n/a expected by the market consensus);
EBIT: € 23.7 M (+123.6% vs. +117.0% expected and +98.1% expected by the market consensus);
Net Profit: € 7.1 M (+77.5% vs. +215.0% expected and +125.0% expected by the market consensus).
The results were seemingly better than expected due to higher sales (+29.1% vs. +20.3% BS(e) and +19.0% consensus) but they were very much in line on the margin level (slightly above the consensus estimate): 2.01% EBIT vs. 2.09% BS(e) and 1.93% consensus, which we welcome considering the slowdown seen in project execution as a result of Covid-19. Below the EBIT line, higher financial costs (due to value adjustments to financial assets and FX) left Net Profit below expectations.
The company’s cash position is good (€ 419 M as of the end of 1Q’20; vs. € 371 M as of Dec’19), above our expectations (€ 300 M) and those of the consensus (€ 311 M) despite not having received any down payments from clients on the quarter. We understand that the tax provision made in 4Q’19 has not been paid either.
Contract awardings came in as expected (€ 1.9 Bn), but the backlog came in below expectations: € 10.91 Bn vs. € 12.5 Bn BS(e). If we add to the backlog as of YE2019 (€ 11.8 Bn) the new contracts (€ 1.9 Bn) and deduct the 1Q’20 sales (€ 1.18 Bn), we should see levels of € 12.5 Bn, and thus, we understand that the backlog has been cut.
Awaiting the normalisation of the situation brought by Covid-19, the 2020 guidance was put on hold: around € 5.35 Bn of sales and >3% of EBIT margin, meaning €160 M vs. 161 BS(e) vs. 141 consensus. In any case, the company remains confident in the good performance of sales and margins in 2020. The new guidance will be unveiled with the upcoming earnings releases (July’20?).
We expect a positive reaction awaiting further details on the situation of the order backlog; the decline could be explained by FX although the -13% deviation seems significant. Conference call at 16:00 (CET).
After falling -40% since Feb’20 highs (-6% vs. IBEX), the current share price is factoring in a cut of up to -35% in EPS, or in other words, not only will margins not improve, but they will fall -20%. On the other hand, it is pricing in that, even with margins improving, order intake will fall -50% on the recurrent level. In our scenario of V-shaped recovery, we will cut EPS’20-21 by an average of -20% (-16% T.P. to € 24/sh.), and in the negative scenario -35% (-27% T.P. to € 18.60/sh.). Both scenarios yield enough upside (+55% in the more pessimistic one) to maintain our BUY recommendation. Target Price: Under Revision