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AST |
| Emcee:
dmbjr
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Astaldi Group is an Italian EPC contractor and PPP/project financing operator (#1 PPP operator globally, #3 contractor in bridges globally, #5 in hydro plants globally). The company currently trades at €3.87/share (EV €1.6bn, 5.3x LTM 1Q16 EBITDA).
In FY15A, Astaldi generated €2.2bn in revenues (17% Italy, 46% rest of Europe, 31% America, 2% Asia and 5% Africa) with €286mm EBITDA (12.9% margin) while being levered 3.9x net debt/EBITDA.
The segmental breakdown in FY15A was 69% transport infrastructure, 16% hydraulics and energy production plants, 9% civil and industrial constructions, 6% management services, and 1% concessions.
Recent notables projects include Line 4 of the Milan underground in Italy, the Third Bosphorus Bridge in Turkey and WHSD in St. Petersburg, Russia.
The company has c. €18bn backlog in execution and an additional €11bn in backlog options. The backlog in execution has grown at a 15.6% CAGR since 2011. Contract split has moved from 96% traditional contracts vs. 4% EPC contracts in 2006 to 47% traditional contracts vs. 53% EPC contracts in 2015. It is expected that EPC contracts will make up 60% of the total from 2018E onwards. The focus on EPC should secure margins and allow for better long-term cash flow visibility. Strict EBIT margin thresholds determine initial project selection and allow for a consistent track-record of margins.
The current total backlog is 83% in transport infrastructure and covers 100% of 2016E revenues targets, 74% of 2017E revenue targets and 51% of 2018E revenue targets. Based on the backlog, management foresees a revenue growth of 7% p.a. throughout 2020E. In the mid-term, management has mentioned decreasing leverage as the main priority, and wants to facilitate this via asset disposals, rationalisation of capex, a "capital light" business model and enhanced working capital discipline (target net debt / EBITDA < 2.0x).
Asset disposals are expected to equal c. €750mm until 2020E, with the first €110mm having been closed in July 2016. The proceeds will be used to pay down debt. Company estimates call for c. €650mm of capex spend between 15-20E or c. €130mm p.a. Concession capex peaked in 2015A and is expected to fall significantly over time. Net working capital amounted to c. 24% of sales in 2015A and is expected to decline to below 20% of total revenues by 2020E. Astaldi has ample liquidity with €611mm in cash and €300mm in undrawn credit facilities and we do not foresee any refinancing risk in the forecast period.
Assuming 7% revenue growth rate p.a., EBITDA and EBIT margins below historical average and management guidance at 12% and 9.5%, respectively, a 35.9% tax rate, capex spend and NWC based on company guidance and assuming a 8.5% WACC and a 2% growth rate into perpetuity, we arrive at an intrinsic valuation of €8.90/share allowing for a 129% upside to the current share price.
I would go long the equity at the current market price. Any opinions on this?
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