Few companies in the Spanish market have the ability to go and return to a crisis situation, a boom situation and vice versa. Almost none with as international a profile as Técnicas Reunidas, exposed to some of the world’s wealthiest clients in the energy and chemical sectors. More than 51% of its sales come from the Middle East and its largest client at the moment is the Saudi oil company Aramco. However, four years ago it had to resort to state aid due to the paralysis experienced by the energy sector, but it has long since turned the page, except in relation to the perception of investors with its action.
The engineering group is recovering the stock market presence that it contracted in the past, which led it to be part of the Ibex 35 with a valuation several times higher than the current one. A report by Barclays Capital analysts focuses on the current unfair valuation of the Lladó family company because it has left behind the crisis situation that led it to request financial assistance from the SEPI for companies affected by the pandemic and the geopolitical tensions.
“Técnicas Reunidas has already presented five consecutive quarters with its margins recovered, but the market, in our opinion, still treats it as a stock in difficulties,” writes Mick Pickup, energy sector analyst at the British firm, which he considers “inappropriate” the stock market valuation of the Spanish company and expresses its disagreement. In fact, its target price for Técnicas is 14 euros per share, which gives it a potential of 50% over the 9.32 euros at which it closed this Monday.
“The first quarter results and the upcoming CMD (Capital Markets Day or Investor Day) meeting should help the market appreciate the case of material undervaluation that, in our view, exists,” adds Pickup. According to the analysis, Técnicas’ numbers support its guidance for 2024 in which it expects to continue delivering EBIT margins of 4% and see revenue growth that allows it to record €4.5 billion in annual revenue. “This is equivalent, according to our estimates, to approximately 200 million euros and the company should end the year with more than 100 million in net cash,” she adds.
However, its market capitalization is below 800 million, which places it by valuation in multiples at less than 3 times its enterprise value between its Ebitda. Comparatively, its direct competitors are trading between 6.5 and 8 times. “Yes, it is true that there is a convertible state loan of 175 million euros from the Covid relief measures that the Spanish Government put in place, but with a coverage of its order book of 2.4 times the income for the year in “course and the ambition to have a turnover ratio equal to reserves this year, the valuation seems inappropriate to us,” emphasizes the Barclays analyst.
Towards decarbonization
For decades, Técnicas has earned a reputation as a leading company when it comes to developing turnkey projects for oil, gas and chemical industry facilities. For some time now, as the industry evolves, its order book is also shifting towards decarbonization, with more and more projects on green hydrogen or carbon capture.
Investors await definitive clues about the roadmap the company will follow on that transition path. Barclays believes the upcoming Investor Day meeting will prove to be “a crucial moment for the stock” and expects Tecnicas to cash in on its order book. and the change in its structure towards the green transition, the increase in engineering income and the shortening of execution times.
“It is lagging behind its competitors by some years, although in our opinion, it is a transition journey of several decades. It has already built a potential ‘pipeline’ of transition activity of 12,000 million euros, of which more than 85% It is in projects related to carbon capture and hydrogen, and has accumulated 300 million in engineering services contracts in just three years,” they argue from the British bank.
