The engineering firm técnicas Reunidas is living a complicated exercise. Their own forecasts to 2018, which were quite conservative, are not complied with. The results of the third quarter, submitted a few weeks ago, have confirmed these difficulties in your business. The company is engaged in the engineering, design and construction of all types of industrial installations throughout the world. In Spain is a leader in energy and construction in the energy sector, is at the top of Europe in projects of oil and natural gas, and is one of the most important companies in the world in the field of refining. Therefore, it is very much linked to the evolution of energy prices. Since its creation in 1972, técnicas Reunidas has designed and built more than 1,000 industrial plants in over 50 countries and has a workforce of more than 8,800 workers, in their most highly qualified staff.
The keys of this unique business are, on the one hand, the portfolio that achieves awarded in various international contests, the sales of done finally, the cost overruns and the movements of the currencies in which they are hired projects with respect to the euro. But analysts are looking with particular attention the progress of the sales margin on the ebit (earnings before interest and taxes) for this business, which historically was between 3.5% and 4%, and that in this third quarter of this year has dropped to 1%. Sources of the address of the company say that they have gone through a cycle of bad as a result of the weakness in the oil price, which have been delayed and cancelled awards. “In this period we have focused on clients from the Middle East for the economic boom, but their mode of payment hurts the box”, they explain.
The official forecasts to 2018, which were already very conservative, are not complied with
And added from the company: “Now we enter a new cycle with more activity, more offers and more opportunities. The oil companies begin to be in a hurry and here we will show our strength in geographic diversification”. But, according to recognize, the improved margins will still take. “We have a portfolio of 9,000 billion in orders, but the 70% is in the phase of engineering, which accounts for 15% of the total turnover of the projects. Are the stages of purchase and construction which have the greatest impact and will have to wait until they arrive. For this reason, in late 2019 and early 2020’s we will return to profit margins of around 4 percent,” he explained. Técnicas Reunidas was founded with Spanish capital and its main shareholder is its president, José Lladó Fernández-Urrutia, 37,196% of the capital. The family character of the company Jestbahis appreciates that it is his son, Juan Lladó, ceo and vice-president.
Natalia Aguirre, director of analysis of Renta 4 Banco, is traced back to 2015 when técnicas Reunidas made a warning (profit warning) for delays in their projects, which led to lower operating margins from 4% to 2% of ebit. “The market is worried about its margins. The delay in projects, while maintaining a very qualified, causing some downtime costs that reduce margins, which would have to also add the cost overruns in the construction of some plants,” explains Aguirre. The key to the recovery of the company would get back to the rhythms normalized activity, without stops, and some payments over time, that are not prevalent in the Middle East and that have affected its cash position, which has been reduced to 189 million euros, compared to 231 million that closed 2017.
José Lladó is the main shareholder of engineering group with 37% of the shares
The objectives that are marked técnicas Reunidas for this year point to sales of between 4,300 and 4,600 million euros and an ebit margin between 1.5% and 2.5%. The reality until the third quarter are revenues of 3.356 million and a margin of 1%. With respect to the dividend, the company remains committed to a policy of compensation, although as pointed out by the analyst Iñigo Recio of GVC Gaesco Beka, have already cut their pay may and probably will keep this trend. From técnicas Reunidas comment that the dividend will be decided at the next meeting: “there is No decision taken, but in previous years we have given cash to meet the payments”.
Child benefit
And is that the net profit of the engineering firm has been at the end of the third quarter of the year of 5.9 million euros compared to 64 million that ended last year. A fall which the company explained in part by the recognition of exchange differences, which amounted to an expense of 19 million euros, linked to the Turkish lira in the quarter. Since Techniques also explain that some of the projects are in the fast phase, where you will find the problems.
The analyst for Renta 4 believes that it will be necessary to wait for the figures of the fourth quarter to see if objectives can be met. The key for practitioners is to recover credibility. “Currently Techniques is to bid for portfolios of 39.000 million dollars and it is normal to be awarded in around a 25% in the next two years,” explains Aguirre. The vision of Recio is not far from that of his colleague. “The worst thing for the company should have gone in the third quarter. The challenge is in the room, with a rise in the margin on ebit and net sales of 1,500 million euros could finally meet the guide that was marked at the end of last year, although of very fair”. And remember that at the end of the third quarter reached a contract of 1,400 million with the united Arab Emirates. “Anything that has a good streak, it could also recover part of the box lost. We are optimistic and have a positive recommendation”. Not all analysts think the same thing. The Sabadell encrypts the target price of the action in 22,05 euro and recommend selling. The action falls on the Stock exchange on 13% in the year, in line with the decline of the Ibex 11%.
