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Q2 22 figures came in line with expectations (excluding EUR75m provision) Positive sales figure with EUR881m (+9% vs consensus), while adj. Ebit EUR15.6m was very much in line with expectations (+2%). Adj. EBIT margin was also in line at 1.8%. During the quarter the company recorded a EUR75m extraordinary provision for litigations (related to the company''s recent call of performance bonds in the Touat Gaz project in Algeria), which once again implies a loss in EBIT and NP. Net debt is worse than it what initially seem Net cash position raised to EUR134m, but the figure should be adjusted down according to our calculations. The figure should reflect part of the SEPI loan which is not considered debt (EUR165m), but the company includes the gross cash, and also by EUR80m of reversal of loans due to the Algeria issue. All inclusive this would represent a Net Debt of EUR116m, compared to a Net Cash in Q2 21 of EUR94m. While Net debt evolution is something to worry about, liquidity remains relatively healthy Guidance slightly cut Outlook for revenues has been reduced slightly to between EUR3.7-4b, vs above 4bn previously, while the company keeps its confidence in reaching above 2.5%-3.0% EBIT margin in H2 which would enable it to be 2% for the full year (excluding provisions). In terms of order intake, as we anticipated in our preview, there has been a delay of tenders, so new awards will be mainly in Q4. Neutral maintained We are still waiting to see a true recovery in margin, without one offs and cost overruns. The environment is far from being normalised and further delays in sales will imply another disappointing year in term of margin. We adjust our estimates reflecting the provision and the lower cash. Our TP is revised -13% to EUR7/s (on lower cash mainly). We remain Neutral on the name.
Tecnicas Reunidas SA Tecnicas Reunidas SA
The year started slowly but the guidance was maintained with a gradual ramp up of the activity of margins expected throughout the year. On the commercial front, the management said that the market is in a “serious investment mood”, with TR receiving three large awards, especially for Ineos in Belgium and the construction of an ethylene plant (which could be worth €3-4bn up to 2026).
Better than expected sales but no signs of margin recovery Sales, while slightly better than expected, barely improved versus Q1 21 (+1.3%), although there was some improvement on the last three quarters of 2021. Reported EBIT remains weak at EUR7m (0.9% EBIT margin), with underlying profitability also remaining at a low level. The company reported an additional COVID impact of EUR5m in EBIT. Good orders and backlog Tecnicas Reunidas reported good data in terms of order intake. The figure was EUR632m in Q1 but increasing to EUR1.2bn YTD as a result of the ethylene contracts in Europe (Ineos) and the sulphur facilities in Qatar (Qatargas). Backlog has increased up to EUR10.4bn in Q1 (EUR10.9bn YTD). The company expects order intake to be above EUR4bn in the year. Net debt... the devil is in the detail Tecnicas reported net cash of EUR61m, better than the net debt figure of cEUR40m expected by consensus. However, the company does not account the participative loan from Sepi as debt but rather as equity. Including the EUR175m participative loan, Net Debt in the quarter would have been EUR114m, EUR40m above FY21 and above consensus expectations. Gross operating cash flow is close to zero according to our calculation, with an increase in working capital of EUR23m. This pattern, according to the company, will be maintained in Q2 and improve in H2 22. Outlook reiterated... we need to see a turnaround in margin to become more constructive The outlook is reiterated with total sales of c.EUR4bn in the year, EBIT margin at 2%, despite the crisis in Ukraine could impact negatively raw material prices and supply chain disruption. We maintain our estimates, which are slightly below the company''s EBIT margin 2022 guidance (1.9%e vs 2.0% guided). We think these results give little reason to consensus to lift estimates.
Weak results with the net loss worsening by €-42m to €-192m for FY21. The positive comes from the order intake, with TR awarded €4.8bn of projects since the beginning of 2021, with a backlog at €11.1bn (+€2.7bn yoy). The guidance of FY22 is slightly better than our estimates (revenues of c. €4bn and EBIT margin above 2%, vs estimates of €4bn with EBIT margin of 2%). Yet, after a quarter showing lower margins, TR needs to improve quickly to be convincing.
No recovery either in top line or in margins Results came below expectations with no recovery in sales vs the poor Q4 20 and with profitability continuing at very low levels. Sales declined 1% in Q4 21 vs the recovery expected by consensus. EBIT remained in the red, still impacted by COVID issues (additional EUR16m impact in Q4 according to TRE). The backlog was EUR10.5bn, with EUR4.16 order intake in the year. Watch out for debt trend Another issue, and probably where all eyes should be, is net debt. Although the company commented that Q3 Net debt (EUR93m) was temporary, and down-payments should have a positive impact on leverage in Q4, the recovery has been very small. Net debt at the end of Q4 was EUR78m, despite EUR70m improvement in working capital (including EUR40m increase in down-payments). While liquidity is high thanks to the recent loan from SEPI, it could be challenging if the financial position does not improve when the company faces the procurement phase of its large backlog. Outlook maintained Tecnicas has maintained the outlook announced in Q3 21: Sales c.EUR4bn, EBIT2% and more than EUR4bn order intake, of which c.EUR700m is already awarded. Consensus remains cautious with figures below those levels. We remain Neutral We slightly adjust our figures and maintain our TP at EUR8/s. We believe that if the company is able to deliver the expected recovery in margin, first to 2% and later to c.4%, there would be an opportunity for a rerating. However, TRE has disappointed several times in the last five years, so in our view it is worth waiting for a visible recovery before becoming more positive.
Another quarter without recovery, and getting into Net Debt position Tecnicas Reunidas results were weak again, with the absence of a contract in the quarter (Turkey and LatAm was announced in Q4 already), no recovery in EBIT and EUR90m Net Debt position for the first time ever. Sales dropped 2% in Q3, despite the easier comparison vs last year, while EBIT was EUR0m. Backlog reached EUR9.5bn at the end of Q3. Including the contract in Turkey and the new desulphuration unit in LatAm it will increase up to EUR10.4bn (EUR3.7bn order intake). Guidance points to delay in margin recovery Tecnicas guided to above EUR3bn sales and H2 21 EBIT at breakeven, with more than EUR4bn order intake. For 2022 TRE expects above EUR4bn sales and 2% EBIT margin and also above EUR4bn order intake. These figures were very much in line with consensus at the top line level, but clearly below in terms of margin recovery, as consensus expected a 2.8% EBIT margin for next year. For its Mid term target (beyond 2023) TRE expects sales above EUR5bn, in line with awards and EBIT margin c.4%. We see this as a challenge given the recent track record of the company. We adjust our figures We postpone some 2021 projects to 2022 (mainly the big M. East gas projects), and the same happens with sales. We reduce our adj EBIT margin estimate to 1.2% in 2021 and to 1.8% in 2022 (vs 2.7% previously in both cases). This has a limited impact on our valuation as we already reflected a weak debt and working capital for the year. Our TP is reduced to EUR7.6/s. No hurry to look for the upgrade There are no signs of recovery yet and after 4 years of disappointing results (and missed guidance) we need to see the turnaround point before becoming more optimistic. The company has signed the EUR340m financing with SEPI, which includes the possibility of EUR34m in equity in case there is a capital increase of the company.
After a painful H1, the company broke even at the EBIT level. The FY21 guidance has nonetheless been revised downwards, which hints that the quarter was more challenging than expected. The FY22 guidance has also been revealed, with modest improvements at the margin level.
Another provision on top of Q1''s Teesside In Q2, after the cost overruns on Teesside project in Q1, Tecnicas reported c.EUR60m generic provisions for potential negative outcomes associated with the pandemic from the final resolutions and claims to their clients. Additionally, the worsening of the COVID situation in the Middle East and India (+70% COVID cases increase from Q1 to Q2 21) impacted Adjusted EBIT negatively, which was close to 0% (vs 5.7% in Q1). While backlog continues to be robust, with more than EUR3bn awards and 2 new contracts to be announced in the coming weeks in Europe and Middle East (gas), sales came 12% below expectations. Cash not as bad as expected, though company calls on state aid Despite the weak numbers, Net Cash was at EUR94m, above the EUR18m we expected, thanks to a positive performance in working capital. However, the company has announced that it has asked for EUR290m from SEPI (Spanish state investment vehicle), comprising EUR150m as a shareholding loan and EUR140m as a normal loan. The maturity will be 4 years and the loan will not involve new equity. Guidance revised downwards. Limited visibility Sales guidance for this year was reduced to above EUR3bn vs c.EUR3.6bn and Adj EBIT margin at 3%, a figure which strikes us as challenging. Despite orders continuing to be strong (guided to EUR4bn) visibility remains limited in terms of backlog execution and margin levels. We delay expectation of recovery and cut our rating to Neutral We cut our estimates on further execution delays and assume 3% EBIT margin in 2023. Despite the heavy punishment of the market on Friday, we think that the company will not be able to show positive improvement until Q1/Q2 22. We cut our TP to EUR7.8/s, based on 2022 Cash adjusted PE. If we used 2023 figures for our valuation we would get a higher TP but the level of uncertainty does not allow us to look beyond 2022 with any degree of certainty. We cut our rating to Neutral.
Big hit on the stock, echoing Saipem’s woes, which highlights the COVID-19 nightmare for E&C companies managing thousands of employees at one site. This is surprising as we would expect execution to improve and not to deteriorate in 2021. TR reported an EBIT loss of €-100m (after €-49m in Q1), with a call on the performance guarantee bond in the power division (Teesside project). The outlook is revised with a FY revenues of €3bn (from €3.5bn).
Sales in line with better underlying margin. We have 3 questions to follow up With sales in line and adjusted EBIT well above estimates, the cost overruns from the Teesside project have obscured a theoretically good order intake environment. Following the conference call we try to answer 3 key questions: Question 1: Teesside... is the worst-case scenario on the table? Tecnicas mentioned that the EUR103m booked covers the entire impact based on current estimates. There is no guidance about how much the company expects to recover after legal action, given that the termination was unilateral by the client and the plant was c.99% completed. Question 2: Is Adj. EBIT margin of 3.0% conservative given the strong Q1? After a 5.7% Adj. EBIT margin in Q1, guidance looks conservative at 3.0% for FY21. Tecnicas included some one-off efficiencies in the Q1 number. However, we maintain a cautious assumption, given the company''s record of under-delivering versus EBIT margin guidance. Question 3: Is EUR4bn order intake conservative? Tecnicas has provided significant visibility (detailed by project) on its next 6 months'' order intake. It has a leading position in 9 prospective projects totalling EUR7.5bn. With 3 other confirmed contracts worth EUR1.9bn announced yesterday (biomethanol in Amsterdam for EUR200m, an Olefins plant for EUR1bn and a Petrochemical project in Indonesia for a EUR50m FEED and EUR2bn in the future), we believe total order intake is very likely to be above EUR4bn by year end. We increase our order figure. TP maintained at EUR15.5. Outperform We move our order intake from EUR3bn in 2021/22 to EUR4bn and EUR3.5bn respectively. This has a positive impact on EPS of 10% and 20%, keeping the 2022 and onwards margin unchanged. Cash is expected to recover thanks to awards. We maintain our Outperform rating on a company that should regain momentum during the year as contracts materialise.
TR struggles with its operations, which has been the case for a while now. It is apparent in the power division with the division reporting a further loss of €60m this quarter, amounting to €214m for FY20, against revenue of €205m. The guidance is not particularly positive with revenue and an adjusted EBIT in line with 2020. The bright spots are the improving cash position and the commercial prospects, with expectations of replenishing the backlog this year.
Weakness continues Sales declined 44% in Q4, below the -37%/-32% estimated by consensus and Exane respectively. Reported EBIT margin reached 1.1%, below consensus'' 1.2%. The company reported an adjusted EBIT margin of 2.4% in Q4 (3.0% in FY20, which excludes restructuring charges and COVID related expenses, which was below the 3.7% estimated by us). However, the company recovered part of the net cash lost during the year due to positive working capital in Q4, reaching a net cash position of EUR197m, above our EUR167m and the EUR114m estimated by consensus. Kicking the can down the road on guidance The company reiterated the guidance communicated at 9M results. It expects Sales of EUR3.5bn, flat vs 2020, as a large proportion of the projects have been re-scheduled beyond 2021. In terms of order intake, it expects an above 1x book to bill, with several projects tendered already in H1 21 (with limited impact on 2021 sales). In terms of margin, the company mentioned an Adjusted EBIT margin of 3%, although more as an aspiration than guidance. In any case, the current environment will continue to add volatility to the business We update our figures. TP unchanged In line with what the company indicated, we postpone the majority of backlog execution to 2022. However, we make more conservative assumptions in terms of order intake (0.85 book to bill) and EBIT margin (2.7%e in 2021). We cut NP21 by 27% while leaving 2022 figures broadly unchanged. We maintain our TP at EUR15.5. Outperform... but company needs to deliver The positive evolution of crude oil in recent weeks will help to increase dynamism in the industry and could accelerate new projects. This, together with greater clarity on mid-term margins, should help to rebuild confidence among investors. We maintain our Outperform rating as we see great potential to improve, although we recognise that short-term visibility is reduced.
Good margin but with weaker sales With only one big contract in the year (apart from the EUR100m contract in Chile announced yesterday), order intake reached EUR9.2bn, in line with our estimates. Sales declined 42% in Q3 on delays caused by rescheduling projects due to COVID, especially in the Middle East. EBIT margin was a positive surprise although requires some explanation. Adjusted EBIT margin reached 3.1% at 9M, the highest figure since H1 17. The company announced EUR102m savings in 9M from its TR-ansforma plan. From adjusted EBIT, the company excluded EUR44m of COVID-related one-off costs and EUR10m of restructuring charges. Excluding these adjustments, EBIT margin would have been 1.2% at 9M. Net Cash, as a result of the impact in working capital (EUR63m working capital deterioration from EUR-332m in H1 to EUR-265m), declined more than initially expected to EUR113m (EUR154m in H1). Outlook: could this be the rebound in margins we were expecting? Tecnicas stated that FY sales would be above EUR3.5bn and Adjusted EBIT margin around 3%. We think that the guidance is conservative given 9M figures: on sales it would imply a quarter as bad as Q3 (-40% decline), while on EBIT margin just the c.EUR40m expected in savings in Q4 should imply adjusted EBIT20 of 3.5%. It has also commented on a re-scheduling of the backlog, moved mainly to 2022, with 2021 flat. We adjust our figures; Outperform reiterated We cut our FY20 sales by 9% and maintain the same reported EBIT margin. Our adjusted EBIT, which is not altered for COVID impact, is up 4.8% due to the restructuring. For the following year, we decrease our sales estimate, based on project re-scheduling, but slightly increase our EBIT margin to 2.9%. We maintain our TP at EUR15.5. We think that if the underlying margin recovery is sustainable, the company will outperform in coming quarters.
Tecnicas Reunidas SA
Weak results, and part of this disappointment could have been avoided with better guidance. Revenues are down 25% qoq as customers and TR reprogrammed major projects, as well as an execution slowed by the pandemic in the Middle East. The company now guides for revenues of at least €3.5bn for 2020 and €3.6bn in 2021, which is below our current estimates (€4.3bn and €4.6bn respectively). As a positive, TR sticks to an adjusted EBIT margin of 3% (excluding COVID-19 costs).
