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TÉCNICAS REUNIDAS: 3Q'19 RESULTS, T.P. INCREASE AND CHANGE OF RECOMMENDATION TO BUY (ANÁLISIS BANCO SABADELL)

3Q'19 vs. 3Q'18 Results:
Sales: € 1.212 Bn (+21.6% vs. +5.3% BS(e) and +6.4% consensus);
EBITDA: € 26.7 M (+48.3% vs. +30.0% BS(e) and +116.7% consensus);
EBIT: € 15.8 M (+12.1% vs. +9.2% BS(e) and +55.7% consensus);
Net Profit: € 10.7 M (+2575.0% vs. +2100.0% BS(e) and +3250.0% consensus).
9M'19 vs. 9M'18 Results:
Sales: € 3.428 Bn (+5.3% vs. +0.3% BS(e) and +0.6% consensus);
EBITDA: € 73.1 M (+68.0% vs. +60.5% BS(e) and +96.3% consensus);
EBIT: € 43.2 M (+38.5% vs. +37.2% BS(e) and +58.2% consensus);
Net Profit: € 24.1 M (+308.5% vs. +276.3% BS(e) and +354.2% consensus).

3Q’19 Results in line with expectations in margins (2.2% vs. our 2.23% estimate and a single consensus contribution of 3.68%), although above expectations in sales (€ 1.211 Bn vs. € 1.05 BS(e) and € 1.06 consensus). We play down the relevance of higher sales, as these accruals are complicated to assess: the key lies in the margin, which is not improving yet. € 4.37 Bn of contracts awarded, as the company announced at yesterday’s closing bell. On the negative side, cash deteriorates once more, coming in at € 215 M (vs. € 250 M as of 1H’19), close to our YE estimate of € 196 M.
TRE reiterates its guidance of reaching an EBIT margin close to 4% at the end of 2019, and thus, if met, we will not see it clearly in Results until 2020. Our new estimate, upgraded in this report, stands at 3.1% in 2020 and 3.8% in recurrent terms vs. 3.5%/ 3.9% consensus.
After these results, we cut our short-term estimates mainly for 2019 (-14% EBITDA 19-20) but raise our long-term figures (+18% EBITDA’21-22), which has an impact of +18% in our T.P. that we set at € 26.16/sh. (+14% upside vs. the current share price, which is sliding -4% to € 22.86/sh.), upgrading our recommendation to BUY (our SELL recommendation outperformed the IBEX by +36% since November’15). We break down our revision as follows: (i) +9% comes from the € 500 M increase in our estimate for order intake to levels of € 4 Bn (in line with the average of the past 5 years; here we were more cautious because, against a backdrop of low margins, the best strategy was to accept only the orders meeting a minimum return level and this meant reducing the pipeline): every €±250 M in recurrence has an impact of ±+4.4% on the T.P.; (ii) +4.6% from the +25bps rise in our estimate for the recurring EBITDA margin to 4.25% (every ±25bps in the margin has an impact of ±4.6% on our T.P.). and (iii) and lastly, +4% from the roll-over of our model (here the adjustment is significant because we no longer price in the historical minimum FCF of €-3 M estimated for 2019).