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TÉCNICAS REUNIDAS: FY2019 RESULTS (ANÁLISIS BANCO SABADELL)

4Q'19 vs. 4Q'18 Results
Sales: € 1.271 Bn (+11.5% vs. -11.3% expected and +1.8% expected by the market consensus);
EBITDA: € 37.1 M (+110.8% vs. +89.8% expected);
EBIT: € 25.0 M (+129.4% vs. +113.8% expected and +145.9% expected by the market consensus);
Net Profit: € -33.3 M (€ 6.1 M in FY2018 vs. € 10.3 M expected and n/a expected by the market consensus);
FY2019 vs. FY2018 Results
Sales: € 4.699 Bn (+6.9% vs. +1.0% expected and +4.4% expected by the market consensus);
EBITDA: € 110.2 M (+80.4% vs. +74.3% expected);
EBIT: € 68.2 M (+62.0% vs. +58.0% expected and +66.3% expected by the market consensus);
Net Profit: € -9.2 M (€ 12.0 M in FY2018 vs. € 34.4 M expected and n/a expected by the market consensus);

Results came in above our estimates and slightly below the consensus in EBIT (+62.0% vs. +58.0% BS(e) and +66.3% consensus), which we play down as the guidance of improved margins is starting to materialize. TRE’s EBIT margin has climbed from 1.3% in 3Q’19 to 2% in the 4Q’19, leaving the company in a good position to meet its >3% EBIT margin guidance from 2020 (vs. 3% BS(e) and 3.3% consensus).
On the positive side, we stress its net cash, which ended FY2019 at € 371 M, +72% vs. 9M’19 or € 156 M. In principle, the impact on valuation in our case and for the consensus should exceed € 2.00/sh. (+8% over T.P.), as we expected € 200 M and € 240 M, respectively. However, the most relevant issue is the concept: TRE’s working capital is starting to improve.
TRE has provisioned €~67 M for corporate tax adjustments. Excluding this provision, adjusted Net Profit totalled € 39.4 M vs. € 12 M as of FY2018. Specifically, TRE has come to an understanding with the Spanish Tax Office to pay this amount, thus removing the risk of a tax inspection into the years 2012-2013-2014. We reiterate that, from then on, TRE has regularised its tax rate at 25-30%, and thus, we do not see any risks in this regard.
The order backlog was in line with expectations (€ 11.8 Bn, 2.5x sales) if we include the contracts announced by the company on 30/12/19.
TRE reiterated its 2020 guidance: > € 160 M of EBIT vs. 157 BS(e) and 167 consensus, >3% margin. We expect a bullish reaction on the share price from the current -1.2% correction vs. -1.9% IBEX. BUY. Target Price: € 26.16/sh (upside 27.24%)