1
Abengoa - BUY
Slightly above
expectations
Delivers the results promised
We restate the BUY recommendation for Abengoa's issues after 2013 results a tad above expectations. We expect Abengoa to continue to strengthen the profitability in the business and to reduce leverage. A further reduction of the leverage is mentioned by Moody's as a decisive factor for a higher rating. At the presentation of the results for Q3’13, the management changed the out-look for the expected leverage to 2.5x at the end of 2013 against a previous expectation of 3.0x. In the financial statements released just now, the leverage was 2.2x, and the management maintains the expectation that leverage must be reduced to 2.0x at the end of 2014. On this background, we find it likely that Abengoa's rating may be upgraded during the year.
Focus on profitability and reduced CAPEX
The reason why Abengoa has been able to reduce leverage from 3.7x to 2.2x during 2013 is the determined focus on stronger profitability and reduction of CAPEX. The profitability was strengthened in all segments, also when biofuels are adjusted for non-recurring income of EUR 142m. In the concession part of the business it is not least Solar Power which drives revenue while all the busi-ness areas show high profitability. In Biofuels, the development in the Europe-an markets was weak while the improvement is driven by the US market. Abengoa expects commercial production from its 2G bioethanol plant in Hugoton, Kansas as of Q2’14.
Overall, revenue rose – adjusted for divestments - in 2013 by 17% to EUR 7.4bn and the EBITDA margin rose to 16.6% (18.6% if not adjusted for the non-recurring item) from 15.0% in 2012. EBITDA rose by 29% and CAPEX fell by 39% from 2012 to 2013, which explain the positive trend in the leverage. For 2014, the company expects revenue of EUR 7.9-8.0bn, EBITDA of EUR 1.35-1.4bn, leverage in the level of 2.0x and CAPEX around EUR 450m.
This is a case recommendation. The
company will be included in our
re-search universe as long as it holds price
potential justifying a BUY
recommenda-tion. Basically we shall discontinue our
coverage of the company if our
recom-mendation changes to SELL.
This is a complex product Recommendation: BUY: ABGSM € 8.5% 2016- XS0498817542 BUY: ABGSM € 8.875% 2018- XS0882237729 Jyske Markets Vestergade 8 -16 DK - 8600 Silkeborg Analyst:
Jens Houe Thomsen
Senior Corporate Bond Analyst +45 89 89 76 88
jht@jyskebank.dk
This is an investment research report. Disclaimer:
Please see the last pages.
€'1000 2 0 11R R 2 0 12 R 2 0 13 E
Rev. 7,089,157 7,783,268 7,300,000
EB ITDA 750,416 942,354 1,102,514
A dj. Leverage 6.0 7.6 5.3
So urce: Jyske B ank & B lo o mberg
€8.5% 2016
80 90 100 110 0 500 1000 1500 04-2010 04-2011Spread
Price
Note: When on strong buy, buy or hold the offer price/yield is shown. When on sell the bid price/yield is shown.
*Composite rating. Source: Bloomberg.
Issue Rec. Risk Price Yield SpreadBid Bid Spread Target Bid Price target Exp. 12M Return Rating* ABGSM € 8.5% 2016 BUY Medium 109.75 3.6% 420 -23 109.44 7.5% B ABGSM € 8.875% 2018 BUY High 112.25 5.4% 538 -23 125.56 19.8% B
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Overview
Company profile
Revenue by segment
Abengoa was founded in 1941 and is today a global industrial and technological company offering innovative and high-tech solutions within sustainability in the environmental and energy sectors. Today, Abengoa operates in more than 70 countries, has 23,000 employees and is a world leader in its line of busi-ness.
Earnings by segment (EBITDA)
Net debt and net leverage
Covenants
Recommendation
Abengoa’s bond issues are trading at attractive levels compared with the market in general and the rating category, but high country risk for Spanish issues is expected to overshadow this in the near term and explains a relatively high risk premium.
Strengths & Opportunities
Weaknesses & Threaths
• One of the world's leading companies within renewable en-ergy and sustainability.
• Geographically well diversified
• Innovative engineering company and developer of new tech-nologies
• Growing exposure to sectors with stable and predictable cash flows.
• Very large share of projects will begin to contribute positive-ly as of 2013-2014.
• Spanish economic downturn may hit demand and the credit market.
• Governments’ willingness and ability to focus on alternative energy, including solar energy.
• Complex company structure.
50%
6% 44%
Engineering & Construction Concession-type infrastructures Industrial Production
40%
27% 33%
Engineering & Construction Concession-type infrastructures Industrial Production 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 8.0x -2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 2009R 2010R 2011R 2012R 2013E Net debt Net leverage
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Company structure
$650m Senior Unsecured Notes ($8.875% 2017)
Abengoa S.A. (Spain)
Abengoa Finance SAU
Telvent GIT, S.A. (Information Technology)
Befesa Medio Ambiente, S.A. (Environmental Services)
Abengoa Bioenergia, S.A. (Bioenergy)
Abeinsa, Ingeniere y Construccion Industrial, S.A.
(Engineering and Industrial Construction)
Abengoa Solar, S.A. (Solar)
Project Companies (Unrestricted subsidiaries)
Restricted Group €300m Senior Unsecured notes
(€9.625% 2015) €500m Senior Unsecured Notes
(€8.5% 2016) €200m Senior Unsecured Convertible Notes
(€6.875% 214)
€250m Senior Unsecured Convertible Notes (€4.5% 2017) €3.430m Non-Recourse Debt $200m Subordinated Notes ($5.5% 2015) 100% 97% 97% 40% 100%
Maturity profile
0 500 1,000 1,500 2013 2014 2015 2016 2017 2018 2019+ EU R mn. Syndicated Loans Bonds4
Coupon Maturity Facility Size Outstanding Amount Rep. Net Leverage Adj. Net. Leverage
Likvider 2047
Loans 2014-2016 1628
Other corporate debt 7.700% 2014-2019 1038
Abengoa Ordinary 8.500%-9.625% 2015-2016 800
Private Placement 6.250%-8.875% 2017-2019 1031
0 0.000% 0 0
Total Senior Secured Bonds and Bank debt - 3459
Net Senior Secured Bonds and Bank debt - 1412 1.2x #DIVISION/0!
Abengoa Convertible 6.875%-6.250% 2014-2019 0 650
Net Bond and Bank debt 2,162 1.8x
Pension liabilities 0
Net Non-recource debt 5028
Operation lease 0
Adj. Net Bond and Bank debt 5,028 #DIVISION/0!
0 0.000% 0 -
-Adj. Net Bond and Bank debt 7,190 6.0x #DIVISION/0!
0 0.000% 0 -
-Net Total Adjusted Debt 7,190 6.0x #DIVISION/0!
LTM EBITDA 1208
Adjusted EBITDA 0
5
ISIN XS0498817542 Bond €8.5% 2016 Issuer Abengoa SA Rating (S&P/Moody's) B / B2 Equity Clawback CallMake Whole Yes, 50bp. Redemption for
Changes in
Taxes Yes
Change of
Control Yes, 101put option
Restricted Payments Limit of Indebtedness Restrictions on Sales of Assets Security Voting rights
6
Jyske Bank's corporate bond recommendatins - current breakdown
Breakdown of recommendations, corporate bonds (number)
Source: Jyske Bank
Disclaimer & Disclosure
Jyske Bank is supervised by the Danish Financial Supervisory Authority.
The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor any liability for transactions made on the basis of the information or the estimates of the report. The estimates and recommendations of the research report may be changed without notice. The report is for the personal use of Jyske Bank's customers and may not be copied.
This report is an investment research report. Conflicts of interest
Jyske Bank has prepared procedures to prevent and preclude conflicts of interest thus ensuring that research reports are being prepared in an objective manner. These procedures have been incorporated in the business procedures covering the research activities of Jyske Markets, a business unit of Jyske Bank.
Jyske Bank's corporate-bond analysts may not hold positions in the instruments for which they prepare research reports. If an analyst takes over for the responsible analyst in connection with illness, business travels, etc. this analyst cannot trade in the relevant corporate bond on the day of publication of the research report and the following day. Jyske Bank may, however, hold positions, have interests in or business relations with the companies that are analysed. The research report has not been presented to the company prior to its release. Analysts receive no payment from persons interested in individual research reports.
Read more about Jyske bank's policy on conflicts of interest at www.jyskebank.dk/terms.
0 2 4 6 8 10 12 14 16 18 20
STRONG BUY BUY HOLD SELL
Financial models
Jyske Bank models the expected development of the analysed company’s income statement and balance sheet. A number of key figures for the company is calculated on the basis of these models, and the key figures are compared with those of comparable companies and the company’s past performance. From this we infer the spread at which the bonds will trade for the period ahead. The recommendation and the price target are moreover adjusted for the expected news flow and the market sentiment based on knowledge of the industry and company-specific circumstances. Jyske Bank’s
recommendations take into account the expected development in the corporate-bond market, the various sectors and company-specific circumstances.
Risk
Investment in this corporate bond is associated with risk. The risk can be measured directly via the spread at which the bond trades relative to a ’risk free’ investment with the same maturity. The spread reflects the probability of default, the recovery rate, and the liquidity of the corporate bond. Movements in the credit market, the sector and/or news flows, etc. regarding the company may affect the price of the bond. See the front page of the research report for our view of the risk associated with the corporate bond. The risk on the corporate bond is stated as Very Low, Low, Medium, High or Very High and is relative to the high-yield market for corporate bonds. The risk factors stated and/or calculations of sensitivities in the research report are not to be considered all-encompassing.
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Tel. +45 89 89 62 32Update of the research report
The planned update of the report will be prepared immediately upon the release of the company’s financial statements. In addition, there may be prepared research reports on special themes specifically for the company or research reports where the company is part of the special theme. These research reports are published on an ad-hoc basis.
See the front page for the initial date of publication of the report.
The prices stated are the latest prices quoted by Jyske Bank before the publication of the research report, unless otherwise stated.
Recommendation concepts
Our recommendations are based on market developments and an assessment of the expected return within the next twelve months. A BUY recommendation or a Strong BUY recommendation is based on expectations that investment in the bond will generate a return above that of the general corporate-bond market. On the other hand, a SELL recommendation implies that we expect investment in the bond to generate a return below that of the general corporate-bond market.
Since our recommendations are relative and risk-adjusted, it is possible to compare our recommendations across sectors and risk categories. In addition, the potential is stated in absolute terms via our return target.
The future and historical returns estimated in the research report are stated as returns before costs and tax-related circumstances since returns after costs and tax-related circumstances depend on a number of factors relating to individual customer relations, custodian charges, volume of trade as well as market-, currency- and product-specific factors. It is not certain that the bond will yield the stated expected future return/s. The stated expected future returns exclusively express our best assessment.
