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MASTERS IN FINANCE
EQUITY RESEARCH
In the Engineering & Construction sector continues the
major contraction in the domestic market as foreign activity is now
worth more than half of the company‟s turnover. Despite the
deception of this year regarding the Angolan market the large
order book associated to the country gives hope of a return to
previous values of turnover soon. Poland is a region full of both
opportunities and competition...
Geovision contribution boosts waste revenues this period,
leading the way for the increase in organic growth of the
environment and services unit. For the close future the increase in
trade-flows will allow for the logistics segment to keep supporting
the good growth of the segment of the last periods.
The very high levels of current interest bearing debt limit
the current ability for the company to pursue growth opportunities
in the short-term, especially in Brazil and Colombia, and keep up
high capex values.
Financial results and Martifer will keep compromising
increase in net profit attributable to the group as debt rollover will
tend to increase interest payments.
The company is now undervalued by €0,335 having a 33%
upside potential of the value of its stock, to reach €1,37 at the end
of 2012. The valuation framework included a scenario analysis
that, and a sum-of-the-parts valuation.
Company description
Mota-Engil is the largest Portuguese construction company that operates in the Engineering & Construction and in the Environment & Services business units. It develops activity in 17 countries.
MOTA-ENGIL COMPANY REPORT
CONSTRUCTION & MATERIALS 6 JANUARY 2012
STUDENT: JOÃO MENDES CORTÊS FERREIRA, #334 Mst16000334@novasbe.pt
Building value from the outside
Towards the equilibrium between business units...
Recommendation: Buy
Vs Previous Recommendation Buy
Price Target FY12: 1,37€
Vs Previous Price Target € 1,27
Price (as of 5-Jan-12) 1,035 €
Reuters: MOTA.LS, Bloomberg: EGL.PL
52-week range (€) 1,758-1,075
Market Cap (Mn€) 219,983
Outstanding Shares (m) 193,645
Source: Bloomberg
(Values in € millions) 2010 2011E 2012F
Turnover 2005 2089 2153
EBITDA margin 12% 13,4% 13,3%
Net Profit 37 24 25
EPS 0,19 0,12 0,13
P/E 9,1 8,3 12,0
Net Debt/EBITDA 4,3 4,2 4,2
EV/EBITDA 6,4 5,7 5,7
Source: Mota-Engil; Bloomberg; NOVA Research Team
0
20
40
60
80
100
120
140
Mota-Engil vs PSI20 index
Mota-Engil PSI20
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Table of Contents
Company Overview..........................................................................3
Shareholder Structure...........................................................................3
Business Units.................................................................................3
Engineering and construction...............................................................3
Environment and Services..................................................................11
Ascendi...............................................................................................15
Martifer................................................................................................16
Valuation.........................................................................................17
Engineering & Construction................................................................18
Environment & Services......................................................................22
Ascendi...............................................................................................24
Martifer................................................................................................26
Comparables..................................................................................26
Financials.......................................................................................27
Scenario Analysis..........................................................................29
Appendix.........................................................................................33
Financial Statements.....................................................................35
Disclosure and Disclaimer............................................................36
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Company overview
Mota-Engil results from the merger between Mota&Company and Engil in 2000,
giving rise to the largest construction company in Portugal. Its activity is spread
amongst 18 foreign countries, most notably Poland, Angola and Peru. In 2005
the company makes the index PSI20. Later in 2007, the company creates with
Espírito Santo Bank (BES) the Ascendi group, where it owns 60% of the shares.
With this operation, the Transport Concessions segment ceased to exist. Aside
from these sectors, the company has interests in metallic construction materials
and renewable energies through a 37.5% stake in the Martifer.
The order book of the company has gone up until 2009 when it stabilized at a
€3300 to €3500 million. This figure is expected to remain the same in 2012.
Shareholder structure
Mota-Engil shareholder structure doesn‟t reveal very significant changes over the
last semesters, as most of the company is owned by the Mota family– almost 2/3.
The illustrated division of shares of Mota-Engil allows for a big incentive for the
top-management of the firm (being either in the executive committee or in the
Board of Directors) as most of them, including the Chairman are relatives in Mota
family. The better they are able to manage the company and improve results, the
better-off they are. The low level of free-float allows for a relatively stable
shareholder structure that, in theory, is very important for an efficient strategy
guideline and implementation. However, such high ownership by the Mota family
creates an incentive to choose too much debt over raising capital to fund the
company, as the family would lose influence and control decision.
Business Units
ENGINEERING & CONSTRUCTION (E&C)
The E&C sector includes projects that range from infrastructures such as airport-
related, railways, bridges, dams, and ports to civil construction, including public
facilities or industrial construction, and real estate. The construction sector for
Mota-Engil has started shifting its paradigm of the recent past, when Portugal
and Angola used to dominate revenues. With the presumably long downward
trend started in the Portuguese market, other regions are gaining importance,
such as Latin America and Poland, not only due to the negative Portuguese
Source: Bloomberg
1900
2639
3550
3300
3308
0 2000 4000
2007
2008
2009
2010
9M 2011
Order book (€Mn)
American market starts to become significant in terms of
turnover, especially Peru
Source: Mota-Engil
Figure 1: Historical Order book
Figure 2: Shareholder Structure
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Table 1: Order Book Duration
contribution but also due to self increasing revenues in
those markets with increasing public and private
investment.
To get a better idea about the transformation the sector has
meant for the company, one can look at order book as a
secondary measure of that phenomenon. The order book is
being used to reinforce the data that is reflected on the
graph above. However it is not intended to identify any
direct causal relationship between both backlog and turnover
and which does not always happens for various reasons.
Over time, there are two main trends identifiable in terms of
their relevance to the company: Portugal in a downward
fashion, and the importance of America going up1.
Portugal
After 10 years of large public investments, with the financial crisis reaching the
real economy both private and public initiatives in the sector reduced to mere
government initiatives, which got seriously hit as Portugal entered in recession
mode. What happened in Portugal for the past ten years was a sector that
was artificially sustained, and due to bad signalling, that is, extraordinary
events that fostered the appearance and development of business
surrounding construction companies. Those phenomena blurred in some
extent what would be the real future for the sector (which is happening now).
As a result, the output of construction in Portugal registers historical minimums.
Mota‟s internationalization process started 10 years ago and is now preventing
higher losses for the company. Managers of construction companies identify lack
of demand (80,4% of the surveyed executives) and lack of access to credit
(57,6%)2 as the main responsible for the situation of construction in Portugal. The
order book duration mirrors those opinions:
Jan-Nov 2009 Jan-Nov 2010 Jan-Nov 2011
Order book (months) 9,1 8,4 7,8
1 Before 2009 the Africa and America included Angola and the American countries. Malawi and Mozambique were considered apart.
When in 2010 the American constribution became meaningful to the company, the information became organized in the way it is today. 2 Source: FEPICOP monthly surveys
0
50
100
150
Marc
h 0
5
Sept 05
Marc
h 0
6
Sept 06
Marc
h 0
7
Sept 07
Marc
h 0
8
Sept 08
Marc
h 0
9
Sept 09
Marc
h 1
0
Sept 10
Marc
h 1
1
Sept 11
Total Output Construction
107
68
1082
1452 1221
992
369
888
528 595 501
706 924
827
231 430
2008 2009 2010 9M 2011
Portugal CE Africa&America America
Source: Mota- Engil; NOVA Research team
57% 43% 41% 36% 34%
19% 16% 23% 25% 27%
32% 41% 33% 37% 40%
3% 5% 8% 9% 10%
2009 2010 2011E 2012F 2013F
Portugal Central Europe África America
Source: Mota-Engil; Units: €Mn
Source: Portuguese National Statistics Institute (INE)
Source: Report - Regional Analysis AECOPS, December 2009, 2010, 2011
Figure 3: Weights of Turnover By Region
Figure 4: Order Book by Region
Figure 5: Total Output Construction - Portugal
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0%
20%
40%
60%
80%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Residential New Residential R&M
As the annex 1 “Confidence index - Portugal” shows, managers in the sector
don‟t expect the situation to improve in the near future. The market is
maturing to levels the country can support either in a private or a public
level. It is not only the size of the market changes. The paradigm in the type
of works done is also changing. A sign to support this claim is that many
agents in the sector have been asking for government support in urban
rehabilitation and maintenance as a solution to counteract the decay in
construction of new infraestructures. In addition, the Troika position about
the subject lies in improving housing quality via a better use of the existing
houses3. Taking into account the situation as it is, construction of large
infrastructures – either related to transport sector, like TGV, highways or the new
Lisbon airport – will be postponed and/or replaced by works that are more related
to repairing and maintenance (R&M). The Troika „s recommendation
supports this situation while enhancing the house renting market, creating
better conditions for both tenants and landlords to buildings‟ rehabilitation.4
However, as part of the austerity measures for 2012, the government is
implementing an increase in the VAT rate from 6% to 23%4. Adding to the
usually lower margins that R&M type of projects have, we expect that
EBITDA margins will decrease. Another important factor about the
Portuguese market is the recently idea brought out by the banks‟
association suggesting a debt-equity conversion, substituting debt claims in
shares of medium-size construction companies5. Being owners of the companies,
banks can put pressure for a change in the sector through M&A or other solution
that don‟t compromise their financial gains. This aspect will require future
monitoring as the nature of competition in the country might change. We do not
include this aspect in this scenario. In any case, it is expected a serious decrease
in overall production, mostly felt in the next 3 years and not rebounding to levels
of mid-2010 in the foreseeable future. The same is to say that Mota, as the rest
of the other companies is now and will continue to be affected. This is reflected in
our estimates either in terms of sales but also in terms of margins. Given this
scenario it is expected that creation of value in Mota will not result from its
operations in Portugal. Figures from Euroconstruct do not differ significantly from
the opinion stated above.
3 Report “Retrato da habitação em Portugal: Características e Recomendações”
4 News: Diário Economico: “Construtoras temem subida do IVA nas obras de reabilitação” – 02-10-2011
5 Online Edition Diário Económico 21st November 2011: “Banca cria fundo para salvar construtoras em crise”
0
0,2
0,4
0,6
0,8
1
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Non-Residential New Non-Residential R&M
Source: Report “Uma visão revisitada do futuro” - AECOPS
Figure 6: Evolution of Residential Market
Figure 7: Evolution of Non-
Residential Market
Source: Report “Uma visão revisitada do futuro” - AECOPS
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Table 2: Real Growth in Construction Output (%)
2008 2009 2010 2011e 2012F 2013F 2014F
Portugal -4.8 -9.9 -6.2 -10.0 -12.9 -5.0 -0.7
Euroconstruct 19 -3.7 -8.6 -3.6 -0.6 -0.3 1.8 2.0
Source: Euroconstruct
As one can verify on the table above, it is not in the near future that Portugal will
not recover in terms of real growth in construction output. Indeed, it is likely that
only in 2015 or 2016 the sector might go back to positive real growth.
Source: Mota-Engil; IMF; NOVA Research Team
Africa
Mota-Engil works mostly in three African countries: Angola, Mozambique and
Malawi, along less sizeable operations in São Tomé e Príncipe and Cape Verde.
In each of them, the challenges the company faces are completely different, and
reflect different contexts and nature of projects.
Angola is a traditional market for Mota-Engil. For the last few years its
investments in infrastructures have been remarkable. They are reflected in very
high growth in sales (33% and 12% in 2009 and 2010 respectively). However, the
Angolan economy is too much dependent on natural resources revenues and
burocracy is many times a threat to growth of certain sectors, construction
included. In addition, due to recent agreements made with Brazilian and Chinese
authorities, there are many contracts signed with companies from those
countries, creating a more competitive environment for Mota-Engil Angola to
operate in. So, the holding uses other firms that it owns to vary the type of
projects and consequently diversify its sources of revenues. So far, 2011 has
being disappointing, just as the Angolan economy in general with its real GDP to
grow only 3,7%6, half of the first estimates. Turnover in the first nine months of
2011 declined by €100 million or 21,5% yoy, compromising overall results of the
company. This was mainly the result of delays in projects under construction due
to the Public Investment Program (PIP) – that is funding the sector – not being
effectively executed. Notwithstanding, the order book in the country remains
6 IMF estimates
Portugal 2010 2011e 2012F 2013F 2014F 2015F 2016F
Nominal GDP Growth (%) 1,30% -2,50% -2,80% 0,50% 2,45% 2,22% 2%
Order Book (%) 37% 28%
Turnover (€Mn) 664 624 549 522 511 516 527
EBITDA Margin 6,30% 7,50% 6,00% 6,00% 6,25% 6,25% 6,00%
European countries to start recovery long before Portugal, in the sector
Chinese and Brazilian competition in Angola in the roots of low results of 2011
Payments by the Angolan government still need close
monitoring
Table 3: Portugal-related data
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Table 4: Africa-related data
Source: IMF; NOVA Research Team; Mota-Engil
strong, and the PIP for 2012 totalizes €7107Mn, so we expect that growth to
return in 2012 and 2013. Note that despite success in creating projects to
develop, the Angolan government has proven not to be rigorous in terms of
payment deadlines in the past, especially when oil prices devaluate in the
international markets. This is a situation that requires constant monitoring. The
future for Mota in the country is linked with the ability to cope with competition
that we predict to increase over time, justifying the decrease in EBITDA margins
(it will reach 13% in 2016). One important aspect that requires monitoring are
single-project delays that harm profitability (this year is an example of that). The
extension to which it will happen is an important factor for the future performance
in Angola. We consider that determinant to fade over time, although it still may
appear strong in the next two years. Similarly to other companies, Mota-Engil is
diversifying its business in Angola to counteract this effect, having already
companies operating in the Water area of business for instance.
The other African markets, especially Mozambique, are enjoying high nominal
GDP growth. In 2011 it was the most responsible for the turnover results not
being worse in the region and had a significant role in the high EBITDA margins
registered7. In that particular market however, growth in activity in the sector, and
thus for Mota-Engil is always dependent of the ability of the government and/or
the company to get international funding from international institutions, at least for
the next two to three years. After that, we expect that revenues from natural
resources exploitations, namely coal (which is already happening) and natural
gas (predicted to start in 2014) will start to provide financing for the necessary
construction of infrastructures in the country, much alike what has been
happening in Angola. The novelty of this year in the continent is the investments
predicted to Mozambique and Zimbabwe in the mining sector. The company will
use its knowledge acquired in Malawi to develop this activity in those countries8.
Africa 2009 2010 2011e 2012F 2013F 2014F 2015F 2016F
Nominal GDP Growth (%)
Angola 2% 3,4% 3,7% 10,8% 6,7% 6,6% 6,6% 6,0%
Mozambique 7% 6,8% 7,2% 7,5% 7,9% 7,8% 7,8% 7,8%
Malawi 7% 6,5% 4,6% 4,2% 4,0% 3,8% 3,7% 3,6%
Order Book (%) 35% 28% 20%
Turnover (€Mn) 497 626 513 565 615 671 718 761
EBITDA Margin 15% 18,1% 19,5% 17,5% 16,0% 14,0% 13,0% 13,0%
Forward EUR/USD
1,31 1,32 1,33 1,33 1,34 1,34
7 Source: Mota-Engil
8 News: Diário Económico Online Edition – 26-12-11: “Mota-Engil avança nas minas do Zimbabué e de Moçambique”
Mozambique results can be better, but results in the future are very uncertain.
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Central Europe
The market for Mota-Engil in Central Europe essentially comprises Poland and
Slovakia, but also developing projects in other countries such as Czech Republic,
Hungary and Romania. This was result of a strategic positioning by the company
that has been focusing its activities in countries with promising situations in the
construction markets. Growth in the region enjoyed double digit figures in 2010
(26%), and 2011 will be the best year so far, with a predicted increase of 45% to
€346,5Mn in turnover. Poland is the main country in terms of order booking in the
region: €680Mn. In 2011 the sector is showing signs of a slowdown but hopefully
EU funds (to be used until 2014) and political will to seriously develop
infrastructure in the country, especially regarding transportation sector (railways
and highways), will keep an healthy status in the market for the short and
medium term, allowing Mota-Engil to continue to increase the importance of the
Polish market for its overall results. In fact, there are several very large
infrastructures, to which Mota can present itself as a good candidate, given its
past experience, to get contract over part of those infrastructures, namely the
ones most likely funded by the EU: the North-South Baltic-Adriatic Corridor; the
East-West corridor linking Warsaw, Berlin and Amsterdam; railway and road
investment projects along the Warsaw-Tallinn line; the upgrade of the Gdynia-
Katowice connection and the Katowice-Brno section; Warsaw-Poznan line (to the
German border) and the Wroclaw-Dresden section. High-speed rail lines
between the largest Polish cities can also be included in European funding,
increasing its likelihood of being executed.
Fears reported include financial markets instability and that the completion of
Euro 2012 works will be the breaking point between two different periods in the
market. After the event, firms expect a decrease in public road-related
investments and also a cut in the developer segment investment made by private
entities.9 In addition, Mota-Engil faces fierce competition in a market that is being
explored by other international companies in the construction sector, namely
Budimex (Poland), KBG (Poland) Strabag (Germany), Skanska (Sweden), and
Ferrovial and FCC (Spain), to name a few. Facing a very high level of
competition, large and medium companies in the Polish market are diversifying
revenue sources. Mota-Engil is following the trend. One example is the recent
acquisition of a construction company specialized in power and
9 Source: Article “Predicted Slowdown in the construction market” – PMR Publications
Lots of projects to be realized in the Polish region in the
near future
Change in the situation is expected after the EURO 2012. Close monitoring on this is advised
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Table 5 – Central Europe related data
telecommunication works.10
The company has to count on its historical presence
in the market (12 years), on its experience in road construction in several regions
and on quarries it owns to be able to continue to grow in this very competitive
market. Turnover in the first 3 quarters of the year already surpassed that of the
entire 2010, €257 million and €239 million respectively. Despite this increase in
results, turnover coming from this market is likely to cool down after 2014, mostly
depending on government policies on public investment. Due to the competitive
environment in the country EBITDA margins are set to decrease, as companies
will tend to compete in price to gain tenders over other companies. To counteract
this situation, construction companies in the Polish market are reporting several
measures including hard negotiations with both subcontractors and suppliers of
building materials, streamlining project implementation schedule and arranging
with investor to adapt the design of projects to more affordable technologies.11
Central Europe 2009 2010 2011e 2012F 2013F 2014F 2015F 2016F
Nominal GDP Growth (%)
Poland 1,6% 3,8% 3,8% 2,97% 1,77% 1,86% 1,95% 1,85%
Order Book (%) 25% 16% 19%
Turnover (€Mn) 287 239 347 381 412 436 458 481
EBITDA Margin 1,4% 3,3% 4,0% 5,0% 5,0% 5,0% 5,0% 5,0%
Forward EUR/ZLN
4,62 4,71 5,09 5,26 5,46 5,58
Source: NOVA Research Team; IMF; Mota-Engil
America
America has been having the best year in terms of contribution since Mota-Engil
started operating in that region. The most noticeable countries in the construction
sector include Peru and Mexico. Brazil and Colombia are seen as investment
opportunities and entering in those markets is under serious analysis by the
company.12
The region had a boost in terms of revenues in the first three
quarters of the 2011, increasing almost by three times the amount registered,
comparing with the same period of 2010. EBITDA margins also increased (10%),
and are expected to continue this way next year. Important works were obtained
in Peru such as the €59,5 million project in the gold mine of North Laguna-
Chicama High and a €127 million road-related project in Peru. Having said this it
is not odd that the order book in the first semester of 2011 went to €360 million
up from the €198 million for the entire year of 2010. This way, Peru is now the
10
Source: Construction Poland Online 11
Results from a survey (120 respondents) included on the report “Construction sector in Poland H2 2011 – Comparative Regional Analysis and development forecasts 2011-2014” of PMR Publications 12
Source: Mota-Engil
Mota-Engil to enjoy high government investment in the
sector.
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third largest market for Mota excluding Portugal. For next year the government of
Peru has scheduled a large investment in the sector, equal to US$ 588,23
million. Until 2015, the country planned to invest €45Bn in the sector13
. Facing
this scenario, we expect the company is expected to continue progressing in
double digit annual growth, although with lower values than 2011. The rapid
increase in importance of Peru is justified by a diversification of the services
developed in the country. Until last year, what Mota did in the country was limited
to copper and gold mining. These works are similar to the ones done in Malawi
(i.e. landscaping and infrastructure management). Then, the company started
targeting the development of their core business in the country – road
construction – boosting the numbers as referred above. They also started to
explore business opportunities in the logistics segment, as it will be described
below.
As for the Mexican market the situation of the sector looks promising judging by
the data available characterizing the market. The sector represented 6,8% of the
country‟s GDP in 2010 14
. The main ambition of the Mexican government is to
increase competitiveness of the country. In order to achieve that goal it was
elaborated a plan of public investments in infrastructure for the period 2007-2012
that included $226Bn, of which $26Bn are devoted to highways. Mota-Engil is
already taking advantage of that fund. The development of PPP projects in the
country will tend to continue, and the development of the highway structure in the
country may increase much alike what happened in Portugal. Mota-Engil is in
that sense well placed in terms of competitiveness to be able to grow turnover in
that country. Several tenders will occur next year in the country, totalizing an
investment of $1341Mn10
. The top five companies operating also correspond to
the biggest contenders: ICA, OHL, Ideal, Tradeco and Grupo Hermes15
.
13
Source: Report “The Future of Construction in Peru to 2015: Future Growth fuelled by planned investment of PEN 157,4 Billion” 14
UK trade and investment report: “Construction opportunities in Mexico” 15
Website: mexicanbusinessweb.com – Inversiones en infraestructura
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Figure 8 – Turnover % Growth by Area
Table 6 – America related data
America 2009 2010 2011e 2012F 2013F 2014F 2015F 2016F
Nominal GDP Growth (%)
Peru 0,86% 8,79% 6,24% 5,57% 6,00% 5,98% 5,99% 6,01%
Mexico -6,16% 5,42% 3,79% 3,61% 3,70% 3,82% 3,39% 3,21%
Order Book (%) N.A. 7% 14%
Turnover (€Mn) 42 83 129 144 158 173 188 203
EBITDA Margin 5% 11% 13% 15% 16% 15% 14% 14%
Forward EUR/USD
1,31 1,32 1,33 1,33 1,34 1,34
Source: NOVA Research Team; IMF; Mota-Engil
ENVIRONMENT & SERVICES
Following the market trend of diversification of construction companies, Mota-
Engil decided not to stay behind its main European peers and looked early to
invest in other businesses that could stabilize cash-flows and provide higher
EBITDA margins. This way a high degree of leverage was
usually required. The same has been happening with Mota, and
will likely continue if it wants to expand in this sector. This is a
matter to be discussed further in this report.
The sector of Environment & Services (E&S) is heterogeneous
including five areas of activity: Waste, Water, Logistics and
Ports, and Multi-services. Although this sector doesn‟t provide
the same absolute level in terms of total turnover, it has much
higher and stable EBITDA margins. Turnover figures illustrate
rather well the importance of each area in the sector, as shown in the figure
above. Historically, Waste and Logistics areas have been contributing more for
the results in the sector, and in the future the trend will be for that contribution to
increase due not only to the intrinsic nature of each area, but also to the potential
of internationalization they have.
Waste
In this area the company is the market leader in Portugal in private domestic and
industrial waste management in most part thanks to its subsidiary Suma. Its most
important customers are municipalities that pay for the company to execute the
service. Mota-Engil also reinforced the internationalization process in this area of
business to Brazil by acquiring Geovision last year, levelling up to three the
number of countries represented16
. That strategic move can bring value to the
16
Mota is already present in Angola via Vista Waste Management and in Poland, with Ekosrodowisko. In 2010 they represented 20% of the turnover in Waste sub-sector.
Waste management as a priority of Brazilian government until 2014 can bring good opportunities for
Geovision
Source: Mota-Engil; NOVA Research Team
31% 29% 35% 37% 37% 38% 38% 38%
13% 19% 16% 16% 16% 15% 15% 15%
42% 38% 37% 37% 37% 37% 39% 39%
15% 14% 12% 10% 10% 9% 9% 9%
2009 2010 2011 2012 2013 2014 2015 2016
Waste Water Logistics Multi-service
Source: Mota-Engil; NOVA Research Team
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Table 7: Waste Data Forecasts
company as the waste sector for Brazilian government entities is a political
priority and an issue to be solved until 2014. In 2011 figures Geovision was the
main responsible for the increase in turnover and we expect Geovision to
increase its activity with the market expansion we believe is yet to come.
Approximately 42% of the 61 million tonnes of waste produced in 2010 did not
receive adequate treatment. In addition, major cities in the country are still
affected by this problem. Private companies like Geovision offer their services to
30% of the population of the country. Unlike Portugal this value is likely to
increase for Geovision, not only for demographic reasons (cities are expanding in
Brazil), but also because there are still many chances for those companies to tie
up long-term contracts with municipalities and increase the current number of
2817
, as the government is putting pressure to reduce the 42% value to a much
lower one, closing the gap between Brazil and the developed countries in this
matter.
On the other hand in Portugal, the business has stabilized, and won‟t grow until
there are more initiatives to further privatize the sector. In 2010 Suma served 36
municipalities out of 54 that hired private waste management companies. Note
that there are 308 in Portugal so in theory there is room to grow, would the view
on the subject change by the authorities. We did not consider that scenario in our
predictions because we believe that it will not happen.
Waste 2009 2010 2011 2012 2013 2014 2015 2016
Turnover (€Mn) 112 119 173 192 207 221 237 253
EBITDA margin 23% 22% 16% 22% 27% 22% 25% 21%
Source: Mota-Engil; NOVA Research Team
Water
The water area of Mota-Engil operates mainly via Indaqua and its subsidiaries
that in its turn serve households and the like in several municipalities in Portugal.
The situation of the market in Portugal is rather similar to that of the waste sector:
several private companies contending for what has been privatized in
municipalities. However, unlike Suma, Indaqua has the fierce competition of two
other companies: AGS, the market leader, and Aquapor, limiting growth
opportunities of the company in Portugal. It also operates in Angola thanks to the
position Indaqua has in Vista Water that operates in that country, and more
recently in Ireland as well.
17
UK Investment and Trade: Environment and water sector briefing
Growth opportunities in the sector are limited, but margins
will tend to increase
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Table 8 – Water Data Forecasts
This sub-sector is characterized by its stability in terms of cash-flow, and by the
final consumer which is the consumer of water. Total results from the sector
depend much on realized investments to improve operations or via expansion of
clients. In the future it is expected that EBITDA margins, that in 2010 was 21%
and in 2011 has been close to 23% will steadily grow until 27% because of
improvements that are being made related to ACE18
. This company
conglomerate as a whole has zero-profit, by definition, being the profit distributed
by its members depending on the share within the ACE. Therefore, turnover
comes inflated by that share, but given that it doesn‟t have profit, that turnover
has zero contribution to EBITDA. We expect this accounting details that will be
solved eventually until mid-2012 and that will allow for margins to improve
significantly until 27% according to our predictions.
Water 2009 2010 2011 2012 2013 2014 2015 2016
Turnover 47 77 80 84 88 91 95 98
EBITDA margin 34% 21% 23% 27% 27% 27% 27% 27%
Source: Mota-Engil; Nova Research Team
Logistics
This area contemplates mostly containers manoeuvre in ports, and cargo
transportation through road or railways. In broad terms, activity in logistics
worldwide is dependent on macroeconomic, business and consumption trends.
The increasing pace of globalization and the shift of production spots to places
offering cheaper labor has been allowing for an increase in distance covered
especially by semi manufactured goods. How the activity is developed in ports
and logistic inland platforms is strongly related with trade-flows across countries.
Portuguese government authorities have been taking a look to the sector,
assuming the potential of the country in this matter is far from good, especially
comparing with other European countries. For the decade, the sector is intended
to receive investment, either in ports, inland logistic platforms or railway
availability for container transportation.
For TERTIR, the main subsidiary of Mota for logistics in ports, and for Takargo
Rail, a goods carrier in rails, it matters the most how Portugal can attract cargo to
its ports and then distribute throughout Western and Southern Europe.
Controlling other logistic companies, TERTIR operates in Leixões, Aveiro,
Lisboa, Setúbal, and Sines. Results of this sector are very much dependent of
18
In English: Complementary group of companies
Levels of trade-flows are at the base of Logistics’ results.
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Table 9 – Containers in Ports
Table 10 – Logistics Forecast Data
trade intensity and business preferences as to ways of transportation (maritime,
rail or road). Currently Portugal has been
showing increasing levels of trade, enlarging its
level of international openness (i.e. higher
exports and imports).
Mota also develops this type of activity in
Angola through Sonauta‟s operations in that
country‟s ports, Peru, in the port of Paíta, and
most recently Spain with the concession of the
port of Ferrol, in Galiza.
Two very important features will influence the evolution of the area in the future:
the time it will take for the implementation of a larger railroad infrastructure in the
country for goods transportation, especially the one connecting Sines‟ port to
Spain that crosses the logistics platform of Poceirão that Mota-Engil operates;
the expansion of the Panama Channel that will allow for more transit and larger
ships to cross from the Pacific to the Atlantic ocean to be completed in 2014.
Taking these events into consideration, and the fact that international entities
predict world trade to resume growth in 201321
we forecast moderate yoy growth
for the area with the contribution high EBITDA margins that we expect to be 20%
in 2016. The fact that there are concession contracts signed to develop activities
in ports and the learning curve of managing containers is set to be stable,
allowing for high efficiency in the business and henceforth, high EBTIDA margins.
Logistics 2009 2010 2011 2012 2013 2014 2015 2016
Turnover (€Mn) 151 159 178 192 204 219 243 265
EBITDA Margin 17% 16% 22% 21% 20% 20% 20% 20%
Portugal
Volume of Imports (nominal % growth) -14,4 5,4 -4,5 -2 2,2 3,4 3,3 3,2
Volume of Exports (nominal % growth) -15,4 9,7 6,6 6,5 6,5 6,6 6,5 6,6
Peru
Volume of Imports (nominal % growth) -20,3 24,6 9,78 7,7 7,3 6,6 6,0 6,1
Volume of Exports (nominal % growth) -3,4 1,6 4,2 7,4 8,5 12,2 13,3 10,9
Source: IMF; Mota-Engil; Nova Research Team
Multi-service
This area in the E&S sector comprises several activities from maintenance of
buildings and facilities to landscape architecture, parking lot management or
19
Ports of Central and South America: Container Traffic; Paíta Port Website 20
NOVA Equity research team conservative estimate 21
IMF Estimates
Million Containers 2008 2009 2010 1Q2011 2Q2011
Leixões 294 291 305 79 84
Aveiro 45 12 - - -
Lisboa 371 328 337 82 89
Setúbal 11 15 30 0 0
Sines 157 163 247 248 249
Paíta19
n.a. 85 127 35 3520
TOTAL 878 894 1046 444 457
Turnover Logistics 143 151 159 43 43
Source: IPTM – Instituto
Portuário e dos Transportes
Marítimos; Mota-Engil
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green spaces conception, construction and maintenance. These activities are
performed by several subsidiaries, of which Manvia is the most relevant for the
results registered. It operates in building maintenance and pipelines
rehabilitation. The business is developed when companies outsource a service,
so the level of expertise of the subsidiaries that make this area has been driving
the stable steady growth in turnover and EBITDA margins. In the first three
quarters of 2011 this behavior is reflected: €40m in turnover (€42m in 2010) and
EBITDA margin equal to 5,7% (up from 5% in 2010). We predict the results of
multi-services to follow that of the Portuguese economy overall.
ASCENDI
Mota-Engil carried out an investment in Ascendi group, being the owner of 60%
of the total shares. This was a result of a plan to capture synergies that are
created when the company builds highways and then with Ascendi exploring the
roads as a concessionaire. It manages 5 concessions across the Portuguese
continental territory, and will explore two more highways, but for valuation
purposes only the ones generating revenues are considered while the other two
under construction (Estradas do Douro Interior and Estradas do Pinhal Interior)
are not considered to valuation purposes. Besides Portugal, there are two more
relevant concessions that add value to the investment in the group: the Mexican
Autopista Perote-Xalapa and the Brazilian Rodovias do Tietê. Refer to the annex
6 “Ascendi Concessions” for information on the concessions above mentioned.
Availability method
The new model of financing highways decided by the government is already in
practice. The method of payment to Ascendi for these highways follows an
availability criterion, meaning, as long as the payment facilities (tolls) – through
which Estradas de Portugal (EP) gets revenues from traffic – are available for
vehicles to use them, they receive an amount set in contract until the maturity of
the concessions. The only variable part is included in inflation (assuming VAT is
held constant) that will define growth of future payments made to Ascendi. In
other words, the amounts given to the concessionaire are not dependent on
traffic but rather on the service availability. EP is the (government) entity that,
after the contracts were revised in late 2010 due to the introduction of shadow
tolls in certain highways, is taking the risk of uncertainty in traffic levels. For
Mota-Engil the risk associated with these payments is the risk of Estradas de
Portugal default in its payments. There is a real possibility that the contracts that
determine the payments made to Ascendi as defined today are revised, as part of
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0
2
4
6
8
10
12
€1,1
one of the measures Troika stated in its agreement with the Portuguese state22
.
All of the seven concessions generate expenses to EP such that all of them
belong to the 20 more expensive Public-Private Partnerships (PPP) to be under
review, so none will be left out.
We believe that the most likely outcome of the new contracts, if signed, is that
they will instead be weighted in a way that the payments to Ascendi are reduced
accounting for the fact that the concessions keep adding value to the company.
Find in annex 2 “Schedule of payments of EP to Ascendi Concessions” today‟s
defined cash-flow payments to be made to the concessions owned by Ascendi.
MARTIFER
Since 2008 Mota-Engil holds a strategic participation of in Martifer, that equals
37,5% of the company‟s equity nowadays. Martifer is a Portuguese company that
was primarily manufacturing metallic equipment for diverse constructions, wind
mills parts‟ manufacturing, oil and gas. Later it started a diversification and
internationalization strategy, and is also dedicated to alternative fuel segment,
namely solar energy and projects around wind farms (RE Developer).
Nowadays it operates in 21 countries, including some where Mota-
Engil is present, such as Angola, Slovakia and Poland, but also in the
USA, UK, Australia and more recently India. It is listed in the stock
exchange since 2007 where it started with a stock price of €10.5 with a
market cap of €105 million. The price per share on January 4th 2012
was €1,10.
After a strong increase in its activity and an ambitious
internationalization process, the truth is that the group is coming back to its
origins and concentrating efforts in developing the two main activities already
mentioned: Metallic construction and solar energy.
Martifer is another company severely hit by the economic crisis. Opportunities
emerged in the mid 2000‟s when large investments in renewable energies were
made across the world. Martifer used that green initiative status quo to diversify
its businesses and enjoyed high growth rates. However, with the financial crisis
money shortage diverted funds from such investments. This way, growth
opportunities became scarce and Martifer had to start a non-core asset selling
22
Source: Memorandum of understanding – Statement 3.19
Source: Bloomberg
Sharp decrease in stock
price since IPO
Figure 7 – Martifer Stock Price
Source: Bloomberg
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process, especially in the alternative energies segment abroad. One example is
the most recent sale of wind energy generator fields in Poland.23
Martifer Fundamentals
For the three first quarters of 2011, Martifer presents negative EBITDA values of
€4,9Mn down comparing to the positive €39,8Mn registered in 9M 2010. The path
reflected in the market price becomes clearer if we look to 2009 values, when
EBTIDA was €66,8Mn. Other important figures of the company are shown in the
annex 3 “Martifer Historic Results”. Note that despite EBITDA values are at
historically low levels, the order book for the 9 months of 2011 is larger than any
of the three previous years. For the future the company intends to focus on
metallic construction and solar power segments that represent 85% of turnover.
As part of Mota-Engil group, Martifer has been more recently pushing down
consolidated results of the company. For the 9M of 2011 it contributed negatively
for net profit in about €13m.
Valuation – Base Case Scenario
Taking in consideration the nature of the company, we engaged in a sum-of-the-
parts valuation process of the company, in each scenario. This way one can
more carefully analyze the specificities of each segment and major transactions
of the company. The E&C and E&S segments were valued using a DCF-WACC
approach whereas Ascendi was valued following a DCF-Flow-to-Equity for the
five Portuguese concession already being explored plus Lusoponte and the two
relevant international concessions considered, according to their book value.
Finally the 37,5% position in Martifer was valued using the consensus for its
market price at the end of 2012. Aside from the four components described, the
company is also expecting to sell some of its non-core assets: land assigned to
Tertir, as well as other real estate property in Portugal and in Poland. The
expected amount from this sale by Mota-Engil is €200Mn. Its goal is supposedly
to help cut total debt24
. However, considering the current situation of the real
estate market, and assuming the company is not willing to sell at a discount, we
decided to value this sale using an expected value approach. This way, by
assigning a 50% probability of selling at €200 million, and another 50% not to sell
it at all, we end up with €100m. This way we are not considering it as a divesting
operation (i.e. subtracting it to the CAPEX value of the period), but a separate
23
Online edition of Expresso, 3rd October: “Martifer vende parques eólicos e encaixa €87,3 milhões”
24 Online edition of Jornal de Negócios, 12th October: “Mota-Engil tem activos de 200 milhões para vender”
Sum-of-the-Parts type of valuation
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cash flow to be registered in 2012, and so to count to the final EV of the year.
Refer to annex 4 “Sensitivity Analysis on the Sale of Non-Core Assets” to check
the significant impact of different sale prices of those non-core assets.
Minorities were computed by summing Ascendi minority on one side, and
minorities of remaining companies on the other. To capture minorities of the E&C
and E&S segments latter we used the 2010 multiple of 45% of Net profit
attributable to minorities over net consolidated profit for the period. We did not
consider previous values due to the fact that Mota-Engil Angola only started
contributing for minorities‟ item in 2010, boosting the amount to be given to
minorities. So, we believe we can get a more accurate value for minorities by
considering only 2010‟s percentage. This method implies that both segments
were valuated assuming they owned 100% of the representative companies. Due
to lack of information on the major companies, we believe this method to give a
reasonable forecast for minorities, as we do not expect something similar to what
happened in Angola to occur in 2012.
Engineering and Construction (E&C)
Right now Mota-Engil faces a two-sided situation that act as a response to the
evolution in the markets the company is operating. Delays in works in Angola
contrasts with healthy growth of projects in Poland. The decaying Portuguese
market goes in opposite directions with the American market, if we look to the
opposite growth rates of turnover: the Portuguese one will never go up as higher
as the 2011 level; the American one will never come back as lower as the 2011
level25
. At the same time the company tries to diversify sources of financing to
avoid harm results at the end of the period, via interest expenses. In Portugal,
tightened access to credit puts pressure in the “customers” account adding an
upward pressure on Net Working Capital and even long-term payables. In
Angola, burocracy and oil revenues determine the ability for the government to
deliver according to established schedules. CAPEX is expected to diminish in
2012, being most of it maintenance CAPEX (exception for the investments in the
mining sector as already described) whilst the company avoids scaling up even
higher levels of net debt. Counting with the entrance in the Brazilian market,
overall, CAPEX will increase from 2013 onwards.
We expect EBITDA margin of the sector to gradually decrease and reach 9,3%.
Due to a very high competitive environment in Poland, and the consequent price
25
Turnover growth of major markets was made in local currency (Zloty in Poland, US Dollar in Angola) and then converted to Euros using forward exchange rates, as shown in the description of each market.
Portugal valuing less, America valuing more.
EBITDA margin to decrease
slightly over time...
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war established in the industry26
, EBITDA margins will remain low in the Central
Europe, never surpassing 5%. The African and American markets are the ones
that have been yielding two-digit EBITDA margins and are predicted to continue
that way, slightly decreasing with time. America is still the place where margins
will remain the highest: 14%. The main reasons are the nature of the works (often
large), and the moderate level of competition. The medium-term results of
America will also depend on whether the company enters in the Brazilian market
and when. We predict that Mota will be in the construction market in Brazil before
the end of 2013. This way it can keep good turnover growth in that region.
Financing needs, its cost, and inflated asset valuation of Brazilian companies are
blockading this move right away27
. The effective tax rate on EBIT considered in
the explicit forecasts was 23%. This rate is the average of the referred rate in the
last three years, as reported by Mota-Engil. Values of depreciation were
calculated by taking the average historical ratio of Depreciations over Fixed
Assets of the previous year, equal to 18,5%, a value we assume will continue in
the future.
E&C DCF 2009 2010 2011e 2012F 2013F 2014F 2015F 2016F
Turnover 1654 1599 1602 1631 1701 1786 1877 1969
EBITDA 130,1 176,9 176,9 175,2 175,7 172,3 177,2 183,1
EBIT 74,8 94,5 105,4 102,4 101,3 91,9 93,0 92,1
Taxes on EBIT 16 10 24 23 23 21 21 21
Results from Associate Companies 6,6 -1,8 -2 -1 2 3 3 3
Δ NWC 67 40 66 40 10 -5 12 19
CAPEX 113 75 87 83 82 102 109 116
Depreciation 51 55 71 73 74 80 84 91
FCF -63,8 23,2 -2,8 28,4 62,5 57,2 38,1 625,3
Discount Factor
1,00 0,92 0,85 0,79 0,73
Discounted FCF
28,4 57,7 48,8 30,0 453,9
Enterprise Value (EV)
618,7
Turnover growth rate 12,8% -3,3% 0,2% 1,8% 4,3% 5,0% 5,1% 4,9%
EBITDA margin 7,9% 11,1% 11,0% 10,7% 10,3% 9,6% 9,4% 9,3%
Source: Mota-Engil; NOVA Research Team
In order to be able to discount future cash-flows, we used a weighted average
cost of capital (WACC) discount rate, assuming a stable target Debt-to-Equity
(D/E) ratio for the segment, after 2016 of 1,09. In order to do that in this particular
segment we expect the company to increase equity more than increase debt, or
26
Article: “Price wars to continue for at least two years on the construction market” – PMR Publications, November 2011 27
Source: Mota-Engil
Table 11: E&C DCF
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equivalently, increase the gap between assets and liabilities by more than the
rise of the latter.
The cost of debt (Kd) of 7,4% was computed under the assumption that Mota-
Engil if rated, would be a BB+ (Standard & Poors) or equivalently, a Ba1
(Moody‟s) company, the same as the Portuguese republic. To support this we
also made an analysis of the company as suggested by the rating agency
DBRS28
. A Ba1 company is a company with debt classified as speculative or non-
investment, and has implicit, according to Moody‟s reports on the subject29
, 11%
probability of default (Pd) together with a 62% recovery rate (RR). To reach the
value of cost of debt we took as a proxy to the 10-year market yield as expressed
in the European BB+ rated industrials” (the curve is depicted in annex 5 “BB+
Rated European Industrials Yield Curve”). If we add a probability of default on
Mota-Engil‟s debt, we calculated the cost of debt as the expected return for
investors on the debt, including a systematic risk premium associated with the
country of 5%30
. This way,
As for the cost of equity (Ke) the value to be used in the WACC equation was the
result of a risk-free31
of 1,9%, a beta which was the average of the industry that
included the companies represented in the “comparables” part of this report. To
reach the beta used to obtain the cost of equity first we unleveraged the
leveraged betas of each peer considered32
. Then we took the average of those
betas, 0,42, and leveraged it again taving into account the level of leverage of
Mota-Engil, that is, using the following equation:
33 . Finally we multiplied it by the market risk-premium (5%34
), and a beta
of Portugal ( 35) of 1,08. This beta is used in order for us to be able to count for
the magnitude of ups and downs of the Portuguese index, in excess to that of the
world. This way we can use the appropriate systematic risk for Mota Engil‟s
28
Report: “Rating Companies in the Engineering and Construction Industry” – May 2011 29
Reports: “Moody‟s Global Credit Policy – Corporate Default and Recovery Rates, 1920-2008” ; “Moody‟s Rating Methodology, August 2006” 30
Without this premium, Kd would be 2,9% a value for us incoherent with other rates in the market. Vinci, the largest construction company rated BBB- has a yield on its perpetual bond quoted 5,74%. For us Kd of Mota-Engil has to be larger than this one, following an opportunity cost reasoning. Other Portuguese companies, EDP and PT (both BBB-) have yields of 7,6 and 10,7% respectively. Note that EDP and PT operate in typically less risky businesses than Vinci This shows that for investors, debt of Portuguese companies are quoted with a premium. 31
The 10-year German Bund as of January 5th
32 βu,ind = average of unleveraged betas of the peers used: Acea, Suez Environment, Veolia, Aguas de Barcelona and Global Logistics.
33 The tax rate considered was 26,8%, as the weighted average tax rate of Portugal, Poland and Angola.
34 Literature assesses a 4,5% to 5,5% interval for this value.
35
. We assume the covariance to be 0,9 as the level of contagion between the two is very high, but
not perfect. This way,
WACC inputs
Market Yield 7,99%
Probability of Default 11%
Recovery Rate 62%
Premium 5%
Cost of Debt (Kd) 7,4%
Risk-free Rate 1,86%
Market Risk Premium 5%
1,85
1,08
Cost of Equity (Ke) 11,8%
Tax Rate 26,8%
Debt Weight 54,5%
Equity Weight 45,5%
WACC 8,3%
Moderately high cost of debt due to the current situation of lenders and the indebtness
associated to the industry...
Source: Mota-Engil; Bloomberg;
Nova Research Team
Table 12 – E&S WACC Inputs
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stock, in the market it is quoted, whilst at the same time isolate in a reasonable
degree the systematic country risk premium. All these inputs resulted in a Ke of
11,8%.36
Taking in consideration the weight of target debt and equity, of 52% and 48%
respectively, we ended up with a WACC rate of 8,3% for the segment. The
weights considered assume that Mota-Engil for the years after 2016 will continue
operating with approximately the same weights as the ones used in this
valuation.
The continuing value (CV) considered summarizes all the future FCF to be
obtained by the company after 2016. It represents 73% of the total Enterprise
Value of Mota-Engil. It was calculated using the widely used formula: CV = Last
period FCF*[(1+g)/ROIC]/(WACC-g), where g represents the nominal long-term
growth rate of the company, and ROIC the return on invested capital in the
company.
The nominal g of 2% for this segment of activity considered takes into account
the long-term growth perspectives of the company. Overall, the company will
create value by investing in non-mature markets of the construction industry. We
thus believe that it is in the ability of the company to expand operations to those
markets that not only have room to expand but also are not yet crowded, that lie
the support of the long-term growth of this segment. In other words, many of the
long-term value creation for the company will come from acquisitions and
competitive position under current markets37
. This figure also comprises our
assumption that the company will make to develop its activity in non-matured
markets. The level of competition in mature markets where the company is
(Portugal) or that will become in the medium-term (Poland) pull down our
estimate of g. By evaluating the possible long-term future of the construction
industry in each of those countries we came up with a 2% nominal growth rate,
knowing that construction will not be an important factor of economic growth, as it
is today but will evolve approximately at the same pace of the respective
economies. If we sum g with the expected future inflation rate of 2%, then we
have that in real terms the construction industry in the long-run will have zero
growth.
36
37
Barriers of entry in the industry are typically low, so we assume that will not harm g.
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The ROIC rate38
computed was 7,8%, 40 basis points above the WACC, implying
that in fact the company is not generating return as the capital is obtained at a
higher lower than the return it generates in the construction sector.
Environment & Services (E&S)
The E&S segment has gaining weight in the results of the group. The valuation
procedure was similar to that used in the engineering and construction segment
with the particularity that instead of regions or countries, valuation is made
according to business area, that, again, in this segment are: Waste, Water,
Logistics and Multi-Services.
EBITDA growth will show stable but slow paced growth over the years while
capital expenditures are expected to have a very similar behaviour to that of the
construction segment, due to the current limited access to credit and the
willingness of the company to expand operations. Note that related to the other
segment, maintenance CAPEX is traditionally low for Mota in E&S (28,5%
against 51%), so it is growth CAPEX that will continue to play a major role here.
The signalling of the willingness of the company to expand operations in Brazil
was given again with the purchase of 27,5% of the equity of Reciclax39
by
Geovision (the amount related to the transaction was not disclosed by the
company). With predicted improvements in the Peruvian port of Paíta and later
on, when the improvements are finished in the Panama Channel, we estimate
trade flows to increase. This will support the increase of maintenance CAPEX
that will help to maintain its total value at historically high levels, above €60Mn.
The other most important factor is that we believe that the company will reinforce
investment, especially in the waste and logistics segment abroad, when the
limited access to credit relaxes (an event we expect to occur in 2014). We took
an effective tax rate on EBIT of 23%, the average historic effective rate of the
previous last 3 years. In terms of Net Working Capital, this segment has two
different realities. Water (clients are final consumers) and Logistics (private
clients) typically work with negative values, whereas in the Waste segment
(clients are mainly municipalities) NWC is positive due to chronic delays in
payments to Suma. We expect this situation to slightly deteriorate in the future
due to the financing contingencies of municipalities. The same is to say that in
the short and medium run, we expect a slight increase in NWC of this segment.
38
39 Reciclax is a company in the business of recycling construction materials, a service complementary to those offered by Geovision.
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Table 13: E&S DCF
E&S DCF
2009 2010 2011e 2012F 2013F 2014F 2015F 2016F
Turnover 329 410 487 523 554 587 631 675
EBITDA 66,8 80,8 104,1 110,8 113,4 119,8 126,7 130,6
EBIT 40,4 46,8 60,3 57,7 59,4 64,9 70,9 73,6
Taxes on EBIT 9 12 14 13 13 15 16 17
Results from Associate Companies -2 -2 0 0 2 3 3 3
Δ NWC 21 15 22 30 15 12 10 17
CAPEX 86 83 65 63 64 66 69 78
Depreciation 24 30 44 53 54 55 56 57
FCF -52,7 -35,6 3,1 4,5 23,0 30,3 34,9 591,3
Discount Factor
1,00 0,93 0,87 0,81 0,76
Discounted FCF
4,5 21,5 26,5 28,5 450,1
Enterprise Value (EV)
531,1
Turnover growth rate 15% 25% 19% 7% 6% 6% 8% 7%
EBITDA margin 20% 20% 21% 21% 20% 20% 20% 19%
Source: Mota-Engil; NOVA Research Team
WACC calculations included a cost of debt equal to the one used for the E&C
segment (7,4%), assuming investors do not discriminate the usage of the money
they lend, asking for the same return whether the money goes to E&C or to E&S.
This reasoning assumes that Mota obtains the debt for both segments at the
same market price. As for the cost of equity (Ke), the procedure used to obtain it
is the same of the other segment. We assume the same 1,86% risk-free to be
applied as well as the same market risk-premium. The beta to be used is
different from that of the construction as the industry we deal with have different
comparables that yield different betas. This way, the unleveraged industry beta
obtained was 0,37 and taking into account the market Debt-to-Equity ratio of the
company (5,9), we came to a leveraged beta of 1,87 for the E&S segment. After
multiplying it by the (same) market risk premium, and by the same as in the
E&C segment, the resulting cost of equity was: 12,0%. The WACC to be used for
discounting FCF amounts for this segment is equal to 7,1%, assuming a target
capital structure weighting 28,6% and Debt 71,4%. The gap between the two
amounts is set considerably different from each other as the level of equity
nowadays is very small. We believe, however, that it will almost triple today‟s
amount given the increase in minorities we expect to happen until then, mainly
due to the waste segment in Brazil.
For this segment the continuing value represents 85% of the total Enterprise
Value (i.e. €450,1Mn out of €531Mn), and was computed in the same way as
described above.
WACC inputs
Market Yield 7,99%
Probability of Default 11%
Recovery Rate 0,62
Premium 5,0%
Cost of Debt (Kd) 7,4%
Risk-free Rate 1,86%
Market Risk Premium 5%
1,87
1,08
Cost of Equity (Ke) 12,0%
Tax Rate 26,6%
Debt Weight 75%
Equity Weight 25%
WACC 7,1%
Table 14 – E&S WACC Inputs
Source: Mota-Engil; Bloomberg;
Nova Research Team
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The real long-term rate g for this segment is 0,25% and was obtained by applying
a similar reasoning used for the construction segment, but now considering the
countries of Angola, Brazil, Peru and Portugal as the countries we expect the
company will hold operations in the long-term, and good growth prospects in the
Logistics and Waste business units, as the relevant ones for Mota-Engil. The
figure in discussion indirectly states that we expect in the long run that the
company will grow more in E&S than E&C, or equivalently, that Logistics and
Waste areas will drive a higher growth in the long-run than construction. Contrary
to the construction sector, ROIC in this segment is higher than its WACC: 9%
against a 7,1% WACC. This more than compensates the loss in return from the
other sector. Overall, the average ROIC is higher than the average WACC.
Ascendi
Despite 60% of the company is owned by Mota-Engil, it is not consolidated
together with the referred segments in Mota-Engil balance sheet.
The valuation method of the whole group for Mota-Engil is based on the sum of
the value of the several concessions considered. The five Portuguese
concessions Auto-Estradas do Norte, Costa de Prata, Beiras Litoral e Alta,
Grande Porto, and Grande Lisboa were valuated using a Flow-to-Equity method.
Revenues equal the sum of the established payments to be made to
Ascendi for each concession until its maturity. EBITDA margins are
assumed to be 94%41
. Both revenues and investment-related cash-flows
that represent maintenance CAPEX (NWC is zero42
) grow over time at half
the inflation rate. The value for the first year (2011) was calculated by using
the average of the last two years of reported CAPEX made of the five
concessions, roughly €37,5Mn. This value represents the investment made
by the company to ensure the availability as established in the contracts of
concession.
Depreciation is calculated taking into account that total net assets of the
last reported year (2007) are fully depreciated until the end of the
respective concession. The value is reached by doing the average of the
five concessions. It then grows at a half the defined average inflation rate
40
Source: Bloomberg 41
Source: Mota-Engil 42
Source: Mota-Engil
Ke inputs
Risk-free rate 1,90%
Market Risk Premium 4,50%
Average maturity of debt (years) 18
Book value of Debt (€Mn) 3418
Interest expenses (€Mn) 162,5
Market Yield40
13,50%
Market Value of Debt (€Mn) 390
Market value of Equity (€Mn) 49
Average βu,ind 0,45
Tax Rate 26,50%
βleveraged 2,9
Ke 14,4%
Table 15 – Ascendi Cost of
Equity Inputs
Source: Mota-Engil; Bloomberg;
Nova Research Team
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(2,5%) until 2032. The cost of equity was obtained using the CAPM approach.
We computed it as sum of a risk-free rate and a leveraged beta43
times the
market risk premium rate of 5% rate. These inputs yielded a cost of equity of
14,4%. Accounting for the probable change of contracts as defined in the
memorandum, we set a 70% of probability of it effectively occurs and a reduction
of 20% in payments to Ascendi in the 5 concessions already operating, meaning
a 20% drop in revenues, as the outcome to the company valuation44
. We
computed the value of the five concessions as the expected value of the Free
Cash-Flow to Equity holders considering both cases, that is, ,
or €49,5Mn. We valued the five concessions as if Ascendi owned 100% of the
stake on each concession. In reality that is not true. To reach the final Equity
Value we weighted the stakes by the initial investment in each concession in
relation to total investment45
. The resulting weighted average was 78,5%. Then
we multiplied it by the Equity Value (100%) to get the result pretended.
Case 1 – No reduction of payments to Ascendi
2011e 2012e 2013e … 2029 2030 2031 2032
Net profit 28 36 44
173 125 103 53
Depreciations 149 150 152
180 125 104 53
Investment Cash-flows 36 37 38
59 60 62 64
Debt Change 0 139 139
139 139 0 0
FCFE 141 10 20
156 51 145 42
Discount Factor
1 0,87
0,12 0,10 0,09 0,08
Discounted FCFE 141 10 17
18 5 13 3
Equity Value (100%)
432
Equity Value (78,5%)
339
Case 2 – 20% reduction of payments to Ascendi
2011e 2012e 2013e … 2029 2030 2031 2032
Net profit -22 -15 -7
111 81 68 35
Depreciations 149 150 152
180 125 104 53
Investment Cash-flows 36 37 38
59 60 62 64
Debt Change 0 139 139
139 139 0 0
FCFE 92 -40 -31
94 7 109 23
Discount Factor
1 0,87
0,12 0,10 0,09 0,08
Discounted FCFE
-40 -27
11 1 10 2
Equity Value (100%)
32
Equity Value (78,5%)
25
43
Ascendi‟s leveraged beta was computed the same way as in the E&C and E&S segments. Comparables used to get the unleveraged industry beta of 0,45 were Brisa, Abertis, AutoStrada and Societe des Autoroutes. The leveraging process used a market D/E of 6,2, and the Portuguese tax rate of 26,5%. 44
EP would save globally around €1640Mn in the five concessions plus any eventual savings related to the other two concessions of the highways that are being built would EP also starts to pay Ascendi for those two concessions. 45
Total investment in the five concessions was €4032Mn. Source: Mota-Engil
Table 16 – Ascendi FCFE
Source: Nova Research Team; Units: €Mn
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Martifer
For valuation of Mota-Engil, the contribution of Martifer was included by getting
the best estimate for the stock price in December 2012. For that purpose we
used the market consensus, and obtain €1,01. Then we multiplied this value by
the market capitalization of Martifer, which we expect to be the same at the end
of next year. This way, and using the same stake of Mota-Engil as of 31st
December 2011, we end up with a valuation of €37,875Mn.
Base Case Valuation Summary
Table 17: Valuation Items Summary – Base Case Scenario
Segment Value Method
E&C (€Mn) 619 DCF - WACC
E&S (€Mn) 531 DCF - WACC
5 Portuguese Concessions (€Mn) 49 DCF - FTE
Lusoponte (€Mn) 128 Book Value
Mexico: Perote-Xalapa (€Mn) 43 € Book Value
Brazil: Rodovias do Tietê (€Mn) 40 € Book Value
Ascendi (€Mn) 260 €46
Martifer (€Mn) 38 € (Consensus for Dec 2012)
Total Valuation (€Mn) 1.448 €
Sale of Non-Core Assets (€Mn) 100 €
Net Debt '11 (Market Value - €Mn) 1.120 €
Minorities (€Mn) 118 €
Outstanding shares 194
Price per share 1,60 €
Source: NOVA Research Team; Mota-Engil; Units: Mn (except for the price per share)
Comparables
Comparables to Mota-Engil considered are grouped in segments, as there is no
perfect comparable that, operate only in three simultaneous segments, as Mota-
Engil does: Engineering and Construction, Environment and Services and
Transport Concessions. Therefore any comparison of numbers between Mota-
Engil and its peers have to take that fact into account. Refer to the following table
where important numbers and ratios appear.
46
Value of Ascendi is the Sum of the value of the above four items in the table
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Table 18: Mota-Engil Comparables per segment
P/E P/Sales EV/EBITDA Net Debt/EBITDA
2010 2011e 2012F 2010 2011e 2012F 2010 2011e 2012F 2010 2011e 2012F
Mota-Engil 6,6 6,0 5,3 0,1 0,1 0,1 6,4 5,7 5,7 4,3 4,2 4,2
Soares da Costa 3,6 n.a. 8,0 0,1 0,1 0,1 9,3 9,2 7,7 8,0 8,7 7,0
FCC 8,4 9,2 11,0 0,2 0,2 0,2 9,2 9,5 9,5 5,6 5,7 5,7
Ferrovial 5,3 5,8 8,3 0,6 0,6 0,6 11,7 13,1 12,5 8,2 8,6 8,5
Vinci 10,1 9,5 9,3 0,5 0,5 0,5 6,5 6,3 6,1 2,7 2,4 2,3
Eiffage 6,5 6,6 5,9 0,1 0,1 0,1 8,6 8,2 7,8 7,2 7,1 6,6
Strabag 15,0 13,2 12,8 0,2 0,2 0,2 4,8 4,5 4,4 -0,1 -0,1 -0,1
Skanska 12,1 11,0 12,7 0,4 0,4 0,4 7,2 7,9 7,9 -11,0 -9,1 -8,4
Median of Construction
8,4 9,4 9,3 0,2 0,2 0,2 8,6 8,2 7,8 5,6 5,7 5,7
Acea 8,5 12,7 8,0 0,4 0,3 0,3 5,9 5,9 5,3 3,5 3,6 3,2
Suez Environment 9,2 12,8 10,0 0,3 0,3 0,3 6,0 5,6 5,2 3,4 3,1 3,0
Veolia 7,2 14,5 9,6 0,1 0,1 0,1 5,9 6,4 6,2 4,1 4,4 4,1
Median of Environment
8,5 12,8 9,6 0,3 0,3 0,3 5,9 5,9 5,3 3,5 3,6 3,2
Source: Bloomberg; NOVA Research Team; Mota-Engil
Financials
In the specific case of construction companies, it is important to analyse is the
current ratio, especially when after the first three quarters of 2011, 46% of total
interest bearing debt (IB Debt) had a „current‟ status. In addition, today‟s current
levels of bank lending are very low, so it is more demanding for any company to
either meet short term obligations or to rollover its debt. From the number
presented we can say that Mota has been on the edge of not being able to pay
their short-term obligations, if they were due at the end of the period.
Debt Structure
The financial crisis exposed how indebted were some big institutions and
governments around the world. Hence having debt became much more
problematic than before. The same is to say that in practice, solvency47
and
current ratios in most companies, institutions and governments are now not good
enough. In this sense, and following the above analysis on the current ratio, it is
important to figure out how Mota-Engil‟s IB debt is structured. Note that it is IB
47
Current Ratio
2008 0,996
2009 0,928
2010 0,958
3Q 2011 0,960
Source: NOVA Research Team
Table 19: Historic Current Ratio
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debt that is the major component of Net Debt48
/EBITDA, one of the most
important ratios in this industry that holds by itself very high levels of debt.49
Another aspect to be analyzed is that a very big percentage of the amount owed
to credit institutions is due within 12 months. It is not a new aspect of the
company, as the next table reveals (refer to annex “Mota-Engil debt structure” in
annex for more detailed data on the debt maturities of the company)
Table 20: Interest Bearing Debt Weights
Current IB Debt Total Non-Current IB debt
2009 49,7% 50,3%
2010 42,7% 57,3%
9M 2011 46,0% 54,0%
Source: Mota-Engil
The company has objectives and the industries in which it operates require an
amount of investment every year to be able to finish its projects and exploit
worthy opportunities. Therefore, it is crucial that the company is able to rollover
its debt. However, it comes at a price, which is increasing cost of debt and
ultimately a lower net profit through higher financial expenses.
Facing the shortage in credit access from its traditional financial partners and to
avoid a higher cost of debt, Mota-Engil has been increasing its exposition to other
financial institutions located abroad, where the company holds operations.
According to company officials50
17 to 20% of the financing needs are satisfied
abroad, a figure that is likely to increase given the limited access to credit in
Portugal. Note that this does not mean necessarily more exposure to foreign
currencies as the table demonstrates. In order to do that the company creates
sub-holdings in the respective regions to be able to give assets as collateral to
the loans. This represents a change in the structure of the group, modelled in
order to better manage the ability to guarantee financing to support the
operations. This is a measure that can bring on one hand diversified access to
credit and increase chances of rollover of debt with better conditions (i.e. lower
cost), but on the other hand in the long run may tie up the company to deals that
prevent the sale of assets if needed to reduce net debt, or as a strategic decision.
48
49
Refer to the table “comparables” to check on this ratio for Mota-Engil and Mota-Engil comparables 50
Dinheiro Vivo Website Post, 29th November: “Peso do financiamento no exterior na Mota-Engil aumenta de 10% para 20% em dois
anos”
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Finally it is important to reinforce on the Net Debt-to-EBITDA51
matter by looking
at the numbers of the company on the graph below:
Excluding Ascendi from consolidation in the group, the balance sheet figures
yield a lighter Net Debt-to-EBITDA ratio below 552
. In the graph, Net
debt*/EBITDA represents the ratio with a net debt including Ascendi‟s Net Debt
as of the year 2010. We assume that in 2011 and 2012 it will remain stable. This
ratio was included given that in 2009 the Ascendi group stopped to be
consolidated with the rest of the segments, and so was its net debt.
Scenario Analysis
In order to include the most relevant expectations of the cash-flows of Mota-
Engil, and considering the current level of macroeconomic uncertainty we believe
that it is important to consider them in reaching the target price for the company.
For purposes of valuation we considered 4 scenarios: a base case scenario
(already developed above), a good scenario, a bad scenario, and an “Escudo”
Scenario. All of them were considered under the premise that they have a
reasonable probability to occur, and so, are worth of being included in valuating
Mota-Engil. Every comparison made in the description of the scenarios is relative
to the base case scenario.
“Good” scenario
In the good scenario we assume that both the macroeconomic and industry
environments will evolve better than that applied in the base case scenario. In
Portugal, the limited access to credit will ease sooner. Debt rollover would be
made in better circumstances, and thus, the amount of interest payments would
not rise as much. Financial markets would react positively to the economic
51
This ratio is even more important bearing in mind the level of short-term debt of the company and its necessity of roll over it. This way it becomes more accurate in measuring the ability of the company to pay short-term debt than the more usually used interest coverage, or EBITDA/interest. 52
A ratio of 5 is considered the typical number above which companies are not usually able to handle well its debt burden, and thus less likely to capture additional debt required to grow the business.
7,0 5,9 5,0 4,3 4,2 4,2
7,0 5,9
7,3 6,0 5,6 5,6
0,0
5,0
10,0
2007 2008 2009 2010 2011e 2012
Net Debt/EBITDA Net Debt*/EBITDA
Figure 9: Net Debt-to-EBITDA Source: Mota-Engil; NOVA Research Team
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performance of the country, and nominal GDP growth estimates are surpassed.
At the industry level, the market of construction would continue to shrink but at a
lower scale, due to a higher increase in rehabilitation works. Turnover estimates
for the country are not as negative. In Angola, fewer single-project delays would
increase profitability of Mota-Engil Angola. EBITDA margins remain as high as
today‟s and non-current payments due to the company are made, allowing it not
to increase Net Debt-to-EBITDA, despite the expected slightly higher CAPEX. In
Poland the company manages to win the tender for important constructions,
increasing turnover. In the E&S segment, maritime trade-flows would be better
than expected. The Brazilian share in waste segment increases as Geovision‟s
position in the market becomes more important, especially in Sao Paulo.
However, increasing competition in the private sector reduces margins. The
effective tax rate to be considered after 2014 would decrease by 2% due to more
favourable tax policies in Portugal. In Ascendi the contracts are reviewed but in
better terms for the company. Martifer ceases to contribute negatively to the
results of the company, as its results gradually improve due to better conditions
in its business. The sale of the non-core assets goes better than expected, being
the transaction made at €150Mn.
“Bad” Scenario
In contrast with the previous scenario, here we develop our assumptions for
worse macroeconomic and industry conditions than expected. The Euro crisis
persists for several more years in Europe, meaning a generalized stagflation.
Portugal is no exception, and extends troika financing until 2015. As a
consequence, banks in Portugal still limit credit access, having an indirect impact
in Mota‟s cost of debt. In the construction industry the situation in Portugal
deteriorates as expected in terms of total output of production but medium-sized
companies – created due to the entrance of banks in the capital of indebted firms
that largely influenced mergers across the sector – increases competitiveness in
the country. At the same time, small companies go bankrupt at a faster pace.
EBITDA margins would in this case be lower, and Net Working Capital fails to
decrease. Mota-Engil Angola loses market share in Angola mainly to Chinese
and Brazilian companies, causing a smaller value of turnover. The mining
industry fails to impress as activity slows down due to lower demand of goods in
the international markets. Contribution from total turnover from Peru and Malawi
diminishes. In the E&S sector, the internationalization of the Waste area of
business does not get the same impact as planned, so CAPEX is reduced. In
logistics international trade-flows are less intense, especially in ports, harming
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the results of the business area. Overall, Mota is forced to reduce investments as
debt discipline and difficulties in rollover determine so. Financing from abroad
doubles in size in order to ensure at least maintenance CAPEX. The company is
not able to sell the non-core assets as decided given that the offer price was too
low to be accepted by the company.
“Escudo” Scenario
This scenario refers to the situation where Portugal no longer uses Euro as its
currency, but the previous Portuguese Escudo (PTE) instead. In 2011 the Euro-
crisis increased its magnitude and fear became a constant rather than a variable
amongst investors and other financial market participants. Throughout the year,
heads of state fought for delivering the message that the Eurozone would be able
to cope with this crisis, and measures would be taken such that all countries
would keep having Euros. However, if the crisis magnifies even further in 2012,
facing a limit, core-countries, namely Germany and France would “suspend”
Greece and Portugal from the Euro, until recovering their status of Euro-worthy
countries. This way, a 15-country Eurozone would be created, being seen by the
markets as less vulnerable as a whole. The following chain of main events could
happen: as soon as more serious rumours about a possible removal of both
Portugal and Greece from the Eurozone would become more believable there
would be a transfer of deposits to any bank of the Eurozone-15 and/or massive
money withdrawal from Portuguese banks by depositors to avoid asset
devaluation; a devaluation of the PTE of approximately 50% (in relation to the
last conversion rate); a rise in interest rates; rise in inflation caused by enormous
amount of money printed by the Portuguese central bank. In addition, most
portuguese banks would be bailed out by the Portuguese State.
The repercussions for Mota-Engil would lead the company structure to change in
relation to what presented today. If Portugal goes back to its former currency, the
consequent devaluation would automatically reduce the value of assets and
liabilities quoted in PTE, in relation to the main currencies. Assets and liabilities
quoted in other currencies would keep its value in their currencies, but increase
50% in the financial statements of the company, as they would be stated in PTE.
The effect of this change would not be very significant for the company because
the majority of the assets are held in Portugal (and quoted in Euros): at the end
of the year 2010, only 10% of the value of fixed assets was placed abroad53
;
even if we add that to the nearly 20% of foreign financing, the value of
53
Source: Mota-Engil
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“Portuguese” assets still largely surpasses the value of “Foreign” assets. As for
liabilities, we stated above that 46% of the interest bearing debt matures within
one year, and most of it is due to Portuguese entities.54
With the shift to Escudo,
most of Mota-Engil‟s debt would be now held is Escudos, and devaluate with the
currency. With this analysis we conclude that the ratio Assets/Liabilities would
not be significantly affected.
In what concerns the construction output in Portugal, this would decrease even
further than in the “bad” scenario due to higher inflation and interest rates that
would halt new constructions. Repair and maintenance projects would not
increase as predicted. CAPEX would consist in maintenance CAPEX only,
especially in foreign markets, forcing Mota to forgo growth opportunities and
“feed” future turnover growth. In the logistics we would expect an increase in
turnover given that the devaluation of currency would benefit Portuguese exports.
As for the waste segment, given that most clients are public, printing currency
would avoid default and they would always eventually meet debt payments to
Mota. Martifer would go bankrupt. Equity holders would not receive any
compensation from the liquidation of the company.
Overall Valuation
Table 21 shows the items that were weighted in order to get the weighted
average stock price. The result is shown in Table 24, as well as every item
that contributed to reach the overall stock price target for Mota-Engil, the
value we believe the company will be worth, per share, at the end of 2012.
E&C (€Mn) 611
E&S (€Mn) 525
Ascendi (€Mn) 260
Martifer (€Mn) 34
Total EV (€Mn) 1.430
Sale of Non-Core Assets (€Mn) 84
Net Debt '11 1.141 €
Minorities 107
Outstanding Shares 194
Price per share 1,37
Mota-Engil Stock Price as of 5th January 1,035
Upside Potential 33%
54
The maximum amount of IB debt to be held in “Foreign Euros” was at the end of 2010 at most 0,962*0,12*1215=141 million Euros, where 0,962 stands for the weight of euros in total debt, 0,15 is the total foreign financing in 2010 and 1215 is total IB debt.
Scenario Weight
Sale of Non-Core
Assets
Net Debt '11
Base 80,0% 100 1120
Good 2,5% 150 1050
Bad 7,5% 0 1250
Escudo 10,0% 0 1250
Table 21: Items to weight
Source: NOVA Research
Team
Table 22: Overall Valuation
Source: NOVA Research Team
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Source: Martifer
Appendix
Annex 1 - Confidence Index Portugal
Annex 2 - Schedule of payments of EP to Ascendi Concessions
Annex 3 – Martifer Historical Results
55
This concession is considered given that the adjudication already took place. The fact that the construction is most likely to be suspended is not directly related with the referred reduction of payments in the future in that specific concession.
Concessions 2011 2012 2013 2014 2015 … 2036 2037 2038 2039 2040 Total
Norte 332 76 130 134 130 …
2853
Costa de Prata
85 98 71 62 70 …
1142
Beiras Litoral e Alta
175 179 150 142 142 …
2762
Grande Porto
98 110 105 110 103 …
2220
Grande Lisboa
22 24 24 26 28 … 35
956
Douro Interior
0 0 0 114 105 … 54 52 61
2097
Pinhal Interior
55
0 0 0 117 189 … 218 214 211 208 5 4406
Total p.a. 712 487 480 705 767 … 307 266 272 208 5 16436
2008 2009 2010 3Q 2011
Turnover 635,1 606,1 602,1 408
EBITDA 61,7 64 62,1 39,8
Margin 9,7% 10,6% 10,3% 9,8%
EBIT 39,6 38,3 24,7 4,6
Net financial Income -23,4 -26,7 -15,2 1,0
Income Taxes 2,8 7,9 10,5 5,5
Consolidated Net Profit (Minorities) 0,3 -7,5 3,5 3,4
Consolidated Net Profit (Group) 4,4 -5,1 -4,5 -3,3
Net Debt/EBITDA 7,87 6,95 5,54 8,95
Order Book 354 360 542 264
-80
-60
-40
-20
0
Marc
h 0
8
Ju
ne
08
Sept 08
Dec 0
8
Marc
h 0
9
Ju
ne
09
Sept 09
Dec 0
9
Marc
h 1
0
Ju
ne
10
Sept 10
Dec 1
0
Marc
h 1
1
Ju
ne
11
Sept 11
Nov-1
1
Confidence Index
-67,4
Source: INE
Source: Ministry of Finance Report: “PPP and concessions” – August 2011
“MOTA-ENGIL” COMPANY REPORT
THIS DOCUMENT IS NOT AN INVESTMENT RECOMMENDATION AND SHALL BE USED
EXCLUSIVELY FOR ACADEMIC PURPOSES (SEE DISCLOSURES AND DISCLAIMERS AT END OF DOCUMENT)
PAGE 34/36
Annex 4 – Sensitivity Analysis on the Sale of Non-Core Assets
Source: NOVA Research Team
Annex 5 – BB+ Rated European Industrials Yield Curve
Source: Bloomberg
Annex 6 - Ascendi Concessions
Concession Stake Initial Investment (€Mn) Km Maturity Book Value (€Mn) Norte 74,87% 1272 175 2029
Costa de Prata 80,20% 499 109,6 2030
Beiras Litoral e Alta 80,20% 1130 172,5 2031
Grande Porto 80,20% 841 55,5 2032
Grande Lisboa 80,20% 290 91,1 2036
Lusoponte 38,02% 897 19,5 2030 128
México: Perote - Xalapa
43
Brazil: Rodovias do Tietê
40
Source: Mota-Engil; Ascendi
Annex 7 – Mota-Engil‟s Debt Structure
Mn Euros Current 2 years 3 to 5 years over 5 years Total IB Debt Average
Interest Rate
2009 552 195 214 151 1113 2,95%
2010 518 174 347 177 1215 2,89%
9M 2011 617 203 354 169 1342 Not Available
Source: Mota-Engil; Nova Research Team
3M 6M 1Y 2Y 3Y 4Y 5Y 7Y 8Y 9Y 10Y
Yield 3,35 3,46 3,60 4,10 5,28 6,06 6,70 7,67 7,88 7,91 7,99
0,00
2,00
4,00
6,00
8,00
10,00
Sale of Non-Core Assets
Value of the Sale (€Mn) 0 100 125 150 175 200
Price per share (Base Case) 1,09 € 1,60 € 1,73 € 1,86 € 1,99 € 2,12 €
“MOTA-ENGIL” COMPANY REPORT
THIS DOCUMENT IS NOT AN INVESTMENT RECOMMENDATION AND SHALL BE USED
EXCLUSIVELY FOR ACADEMIC PURPOSES (SEE DISCLOSURES AND DISCLAIMERS AT END OF DOCUMENT)
PAGE 35/36
Financial Statements – Base Case
2009 2010 2011e 2012F 2013F 2014F 2015F 2016F
Profit & Loss Statement
E&C 1654 1599 1602 1631 1701 1786 1877 1969
E&S 329 410 487 523 554 587 631 675
Intragroup -4 -5 0 0 0 0 0 0
Turnover 1979 2005 2089 2153 2254 2373 2508 2643
E&C 130 162 177 175 176 172 177 183
E&S 67 81 104 111 113 120 127 131
EBITDA 196 237 281 286 289 292 304 314
EBIT 112 132 166 169 162 163 161 162
(-) Taxes on EBIT 24 19 38 36 36 35 37 37
(+) Results from associated companies 41 8 5 5 4 6 6 6
(+) Net Financial Results -48 -51 -88 -91 -93 -96 -89 -83
Consolidated Net Profit - Minorities 10 32 20 21 16 17 18 21
Consolidated Net Profit - Group 73 37 24 26 20 21 22 26
Balance Sheet
Fixed Assets 724 964 1045 1065 1083 1116 1154 1200
Financial Investments 315 277 270 269 280 230 200 175
LT receivables 67 61 130 175 177 168 166 165
WC 265 177 265 335 352 345 357 385
Total Assets 1378 1517 1720 1805 1812 1804 1842 1900
Provisions 29 72 68 59 59 55 55 60
LT payables 236 231 278 300 330 320 305 280
Corporate Net Debt 437 640 790 825 810 810 800 800
Non-recourse Net Debt 315 108 110 100 90 80 70 60
Total Liabilities 1017 1051 1246 1284 1289 1265 1230 1200
Equity 361 466 474 521 523 539 612 700
Cash-Flow Statement
EBIT 112 132 166 169 162 163 161 162
Depreciation & Provisions 84 106 115 117 127 129 143 152
Taxes on EBIT (Notional tax rate) 28 33 41 42 40 41 40 41
Results from associated companies 41 8 5 5 4 6 6 6
Operating Activities Cash-Flow 210 212 244 249 253 257 270 279
Capex -823 183 152 146 146 168 178 194
ΔFinancial Investments 95 61 -7 -1 11 -50 -30 -25
ΔNWC -6 -88 88 70 25 7 22 36
Investing Activities Cash-Flow -734 156 233 215 182 125 170 205
Tax Shield 5 14 22 4 4 5 5 4
Dividends and other Equity -31 19 29 68 23 37 94 109
Net Financial Results -48 -51 -88 -91 -93 -96 -89 -83
Δ Interest Bearing Debt -919 103 152 25 -25 -10 -20 -10
Financing Activities Cash-Flow -993 84 116 7 -91 -64 -10 20
Δ Cash -50 140 126 41 -20 68 89 94
Source: Mota-Engil; NOVA Research Team; Units: €Mn
“MOTA-ENGIL” COMPANY REPORT
THIS DOCUMENT IS NOT AN INVESTMENT RECOMMENDATION AND SHALL BE USED
EXCLUSIVELY FOR ACADEMIC PURPOSES (SEE DISCLOSURES AND DISCLAIMERS AT END OF DOCUMENT)
PAGE 36/36
Disclosures and Disclaimer
Research Recommendations
Buy Expected total return (including dividends) of more than 15% over a 12-month period.
Hold Expected total return (including dividends) between 0% and 15% over a 12-month period.
Sell Expected negative total return (including dividends) over a 12-month period.
This report was prepared by a Masters of Finance student, following the Equity Research – Field Lab Work Project, exclusively for academic purposes. Thus, the author, which is a Masters in Finance student, is the sole responsible for the information and estimates contained herein and for the opinions expressed, which reflect exclusively his/her own personal judgement. All opinions and estimates are subject to change without notice. NOVA SBE or its faculty accepts no responsibility whatsoever for the content of this report nor for any consequences of its use. The information contained herein has been compiled by students from public sources believed to be reliable, but NOVA SBE or the students make no representation that it is accurate or complete, and accept no liability whatsoever for any direct or indirect loss resulting from the use of this report or its content. The author hereby certifies that the views expressed in this report accurately reflect his/her personal opinion about the subject company and its securities. He/she has not received or been promised any direct or indirect compensation for expressing the opinions or recommendation included in this report. The author of this report may have a position, or otherwise be interested, in transactions in securities which are directly or indirectly the subject of this report. NOVA SBE may have received compensation from the subject company during the last 12 months related to its fund raising program. Nevertheless, no compensation eventually received by NOVA SBE is in any way related to or dependent on the opinions expressed in this report. The NOVA School of Business and Economics does not deal for or otherwise offers any investment or intermediation services to market counterparties, private or intermediate customers. This report is not an investment recommendation as defined by Article 12.º-A of the Código do Mercado de Valores Mobiliários. The students of NOVA School of Business and Economics are not registered with Comissão do Mercado de Valores Mobiliários as financial analysts, financial intermediaries or entities or persons offering any services of financial intermediation, to which Regulamento 3.º/2010 of CMVM would be applicable. This report may not be reproduced, distributed or published without the explicit previous consent of its author, unless when used by NOVA SBE for academic purposes only. At any time, NOVA SBE may decide to suspend this report reproduction or distribution without further notice.