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THIS DOCUMENT IS NOT AN INVESTMENT RECOMMENDATION AND SHALL BE USED
EXCLUSIVELY FOR ACADEMIC PURPOSES (SEE DISCLOSURES AND DISCLAIMERS AT END OF DOCUMENT)
See more information at WWW.NOVASBE.PT Page 1/33
MMMAAASSSTTTEEERRRSSS IIINNN FFFIIINNNAAANNNCCCEEE
EEEQQQUUUIIITTTYYY RRREEESSSEEEAAARRRCCCHHH
After analysing Mota-Engil and its market, the price target
FY 11 is €2.47 per share therefore, the recommendation is to buy.
The presence of the IMF in Portugal has been raising
concerns on future public projects. The Portuguese government
postponed infrastructural projects, such as TGV and the new
Lisbon airport. Consequently, Mota-Engil’s revenues are expected
to decrease 1.7%. Moreover, the national Sovereign Debt is
causing financing difficulties in this division.
Internationalization, both in Africa and Latin America, may
be the key for the Engineering & Construction division. Despite
the Portuguese crisis, Mota-Engil may benefit from foreign
economic growth which may have a positive impact on its
revenues. We expect revenues to grow 25% and 2%, respectively.
In order to diversity from its core business, Mota-Engil will
continue to invest in Environment & Services. In line with this, the
company is planning to expand its market share in Africa,
especially in Angola, due to the country’s strategic plan regarding
sanitation services. Nevertheless, logistics will be the main sub-
division. Privatizations might increase the company’s activity in
Portugal. In 2011, we expect an EBITDA growth higher than 1.3 %.
Mota-Engil changed the transports concession’s division
accounting method from full consolidation to equity consolidation.
The recent increase in the Portuguese Sovereign Debt
might raise the company’s financing costs.
MOTA-ENGIL COMPANY REPORT
CONSTRUCTION 06 JUNE 2011
ANALYST: PEDRO CONTUMÉLIAS [email protected]
The future behind the curtain
Internationalization will be the key
Recommendation: BUY
Vs Previous Recommendation BUY
Price Target FY11: 2.47 €
Vs Previous Price Target 4.00€
Price (as of 02-Jun-11) 1.68 €
Reuters: EGL.LS, Bloomberg: EGL PL
52-week range (€) 2.73-1.64
Market Cap (€m) 353.82
Outstanding Shares (m) 204.636
Source: Bloomberg.
Source: Bloomberg.
(Values in € millions) 2010 2011E 2012F
Revenues 2004 2210 2351
EBITDA 237 261 278
EBITDA mg 11.83 11.81 11.84
Net Profit 36 31 33
EPS 0.19 0.14 0.16
P/E 8.84 12 10.5
Net Debt/EBITDA 5.13 4.25 4.5
Debt/Equity 2.53 2.2 2.3
EBITDA Margin 11.83% 11.83% 11.83%
Source: Company Report Data. Analyst Estimates
EGL PL PSI20 Index
Company Description: Mota-Engil SGPS, SA is a Portuguese industrial conglomerate. The company operates in three business divisions: engineering and construction; environment and services and transport concessions. The company operates in Europe, Africa and America.
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 2/33
EXECUTIVE SUMMARY ........................................................................................................................................... 3
VALUATION ............................................................................................................................................................... 3
COST OF CAPITAL: .......................................................................................................................................................... 4 DISCOUNT RATES: ........................................................................................................................................................... 4
MACROECONOMIC SITUATION ............................................................................................................................ 7
COMPANY OVERVIEW ............................................................................................................................................ 8
COMPANY DESCRIPTION .................................................................................................................................................. 8 SHAREHOLDER STRUCTURE ............................................................................................................................................ 9
CONSTRUCTION SECTOR ..................................................................................................................................... 9
MARKET ENVIRONMENT ................................................................................................................................................... 9 PORTUGAL ..................................................................................................................................................................... 10 EASTERN EUROPE ......................................................................................................................................................... 11 AMERICA ........................................................................................................................................................................ 12 AFRICA ........................................................................................................................................................................... 12 VALUATION .................................................................................................................................................................... 14
ENVIRONMENT & SERVICES ............................................................................................................................... 14
WASTE MANAGEMENT ................................................................................................................................................... 16 WATER DISTRIBUTION ................................................................................................................................................... 17 LOGISTICS ...................................................................................................................................................................... 18 MULTI-SERVICES ........................................................................................................................................................... 19 VALUATION E&S DIVISION ............................................................................................................................................. 19
ASCENDI .................................................................................................................................................................. 20
MARTIFER ............................................................................................................................................................... 23
VALUATION MARTIFER ................................................................................................................................................... 25
FINANCIAL STATEMENTS .................................................................................................................................... 26
APPENDIX – CASH FLOW STATEMENTS ......................................................................................................... 28
E&C ........................................................................................................................................................................... 28
E&S ........................................................................................................................................................................... 29
ASCENDI .................................................................................................................................................................. 29
MARTIFER ............................................................................................................................................................... 30
APPENDIX – PORTUGUESE MARKET RISKS ................................................................................................... 30
APPENDIX – PORTUGUESE SOVEREIGN PUBLIC DEBT............................................................................... 31
APPENDIX – STRATEGIC PLAN 2009-2013 ....................................................................................................... 31
APPENDIX – MARTIFER ........................................................................................................................................ 32
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 3/33
Executive summary
The present report aims to value Mota-Engil, SGPS, S.A. The following
paragraphs intend to stress the threats and opportunities that the company will
face in E&C, E&S divisions and on its associated companies, Ascendi and
Martifer SGPS. The following years will be important to the success of the Mota-
Engil. We believe that the potential growth in Africa and America may boost this
company’s growth.
It is possible to conclude that its internationalization plan has a positive impact in
the E&C division. However, the current Portuguese economic situation will have
a negative impact on this division. We believe that the company’s strategy plan to
diversify from its core business is, and will be, important to increase its margins.
Regarding the E&S division, we consider that the international exposure and the
efforts done to maintain its leading position in the market, as well as, the possible
privatizations resultant from the memorandum signed between Portugal and
Troika will be key factors in this division.
We believe that Ascendi is less exposed to economic risk due to the agreement
signed with the national government stating that revenues were based on
services availability. In fact, the company faces a competitive advantage by
avoiding a revenues variation due to traffic level’s changes.
Finally, we consider that the market is undervaluing Martifer. The company has a
high potential growth, mainly in the renewable division, which generates 48% of
the company’s revenues. This potential can the explained by the European Union
renewable energy technology roadmap and by the expected decrease of the
polysilicon spot price.
Our price target FY11 is 2.47 per share.
Valuation
The valuation method chosen was the Sum-of-the-Parts (SOTP) through the
Discounted Cash Flow (DCF) Method. The discounted rate applied was the
weighted average cost of capital (WACC). To reach the DCF, we forecasted cash
flows until 2016, followed by an annuity to forecast the company value until 2021.
From that period on, Mota-Engil is expected to reach a plateau phase, with
constant WACC, margins and capital turnover. Furthermore, the analysis
Mota-Engil was valued using
the Sum-of-the–parts method
The Cash Flows were
estimated until 2016
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 4/33
assumes that all the existing contracts with suppliers and clients of all business
divisions would not be revised until its end. We valued each division and
associated company separately. To measure the continue value of the company,
the approach adopted was a perpetuity.
Cost of Capital:
For each division, comparables were selected to identify the re-levered industry
betas, to find unlevered betas and to obtain the systematic risk of the company.
The selection criterion was based on companies within same industry for each
division/associate company. We concluded that the industry risk is similar within
Western companies due to the fact that they present in the same markets, belong
to the European Union and offer the same kind services. Moreover, the
regressions were computed based on daily data for the past 7 years and used
STXE 600 index1.
Regarding E&C, heavy construction companies were chosen to assess the un-
diversifiable risk. In what concerns the E&S division, comparables were selected
based on Mota-Engil’s core activities: waste, water, logistics and multi-services.
The same reasoning was applied to find comparables for Ascendi.
The method used to obtain the company’s specific beta was based on levered
betas from the set of comparables selected. Firstly, betas were unlevered using
Mota-Engil’s forecasted capital structure. Secondly, an arithmetic average was
computed to capture the market systematic risk. Finally, we obtained the beta re-
levered according to Mota-Engil´s Debt/Equity ratio. Concerning the E&C
division, the re-levered beta was 1.26. In addition, the re-levered beta for E&S
and Ascendi was 1.23 and 1.2, respectively. Due to its specificity, we obtained
Martifer’s beta by regressing the company’s returns with PSI20 Index. The beta
obtained was 0.9. A possible conclusion states that the company’s and its
associate company’s returns might be strictly influenced by the market.
Discount Rates:
We calculated the discount rates for Mota-Engil based on division and region. To
assess the market premium, we captured the specific risk of each country by the
difference between the specific country CDS and the German 7 Y CDS.
Additionally, we applied the PSI20 index stocks/bonds volatility ratio in order to
capture the changes between stocks and bonds volatilities’.
1 Data from 26-04-2004 up to 26-04-2011.
Table 1 - Comparable's Betas
Unlevered Beta
Beta Levered
E&C Soares da
Costa 0,72 0,78
EIFFAGE 0,74 0,92
Ferrovial 0,79 1,14
ACS 0,77 0,88
Vinci 0,83 1,29
Trevi 0,81 0,84
Impregilo 0,85 1,07
E&S Gnd 0,76 0,47
Sev 0,78 0,63
Bma 0,79 0,65
Schp 0,80 0,52
ferrovial 0,79 1,14
ACS 0,77 0,88
Ascendi Brisa 0,76 0,56
ACS 0,77 0,88
Eiffage 0,74 0,92
AT 0,81 0,76
Discount rate was based on
Mota-Engil division and region
Comparables were chosen based on business area and
industry risk
Comparables were chosen based on business division
and industry risk
Source: Bloomberg; Analyst Estimates structures
MOTA-ENGIL COMPANY REPORT
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PAGE 5/33
Considering that most of the company’s projects abroad are paid in dollars, our
free cash flows were adjusted to foreign currency and predicted using the
Euro/Dollar forward curve. The same methodology was applied to Ascendi and
Martifer.2
Given that most authors defend that it is irrelevant to divide debt by division in
economic analysis, we decided to estimate total debt. To obtain the market value
of debt, interest rates were forecasted based on the Portuguese yield curve and
Euribor forecasts3. This assumption reflects our belief that Mota-Engil’s interest
rate cannot be below the Portuguese sovereign debt, both due to the national
economic reality and the absence of the company’s official debt rating. We
obtained a €1194m market debt by summing the present values of loan
payments4. In what concerns Martifer, the market value of debt obtained was
€471m.
To properly assess the market value of equity, we subtracted the market value of
debt from enterprise value (EV) of the firm.
As previously explained, each division and associated companies were
valued by the DCF method. Regarding the Engineering and Construction
division, the WACC obtained was 9%, whereas for Environment and
Services, the WACC was 8.88%. In what concerns associated
companies, the WACC obtained for Ascendi was 8.81%, whereas for Martifer
was 9.91%. The WACC of the engineering and construction division registers the
highest value within Mota-Engil’s divisions, mainly due to the Portuguese crisis
that the construction market has been suffering.
Revenues were valued by sub-division and region. The importance of each sub-
divisions/regions was based on the weight of EBITDA or on revenues by
divisions/regions. From 2021 on, perpetuity growth rates5 were chosen in order to
obtain realistic growth rates that reflect the industry reality.
In order to value the E&C division, we calculated revenues, from 2011 to 2016,
necessary to obtain the company’s free cash flows. The period considered was
based on forecasts of the international monetary fund (IMF). Revenues of each
region were calculated in order to obtain the consolidated revenues of the
2 Since no relevant information was provided by Martifer’s investments relation department, the referred information was assumed.
3 Data from 02-June-11
4 This debt structure was assumed for E&C and E&S division as well as for Ascendi.
5 We assumed na inflation rate of 1.9%
Cost of debt
Cost of Equity
E&C 10,00% 13,65%
E&S 10,00% 13,63%
Ascendi 10,00% 13,47%
Martifer 10,68% 12,30%
Table 2 – Cost of Debt and Equity
Table 3 – Financial Information
E&C E&S Ascendi Martifer
Rf 3,56% 3,56% 3,56% 3,56%
Beta 1,26 1,23 1,20 0,90
WACC 9,00% 8,88% 8,81% 9,91%
E&C was assumed to follow gross production value and nominal GDP growth
Source: Bloomberg; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Bloomberg Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
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 6/33
division. The E&C division was assumed to follow the gross production value by
sub-segment (residential, non-residential and civil engineering) for Portugal and
Central European countries, until 2013. From that period on until 2016, we
assumed that the gross production value growth would follow the nominal GDP.
Additionally, we considered that American countries would follow the nominal
GDP growth, based on the gross production value of 2011. Concerning Latin
America and African countries, we assumed that the construction sector would
follow the nominal GDP growth. We believe the market share of the company will
grow 1% in 2012 and 2013, in Africa.
The E&S division, it is composed by four sub-divisions: waste, water, logistics
and multi-services. To value this division, we forecasted revenues of each sub-
division to obtain the consolidated revenues. Waste and Water sub-divisions
were assumed to follow household consumption of each country. The forecasts
in the logistics sub-division were considered to follow an average between
exports and imports growth. Finally, the multi-services sub-division was
estimated to grow in line with the civil engineering market.
The associated company, Ascendi, was assumed to follow half of the Portuguese
inflation rate. Concerning Martifer, we believe that the metallic construction
division was assumed to grow with the civil engineering market. Regarding the
renewable energy division, our estimates were based on the polysilicon price and
the European Union strategy for renewable energies until 2020.
The Free Cash Flow forecast6 method depends on public information. This
information is limited and restricted which force us to assume a company’s
structure for valuation proposes. To calculate the free cash flows, firstly we
forecasted sales7 and other operating items; Secondly, we calculated the
NOPLAT by estimating EBITDA and EBIT; Finally, we subtracted the total
investment from NOPLAT. Then, we discounted the FCF using the WACC,
which was computed through debt after taxes.
To understand the evolution of Mota-Engil’s revenues, we analysed its strategic
plan for each division. Total investment was calculated based on two main
components: net working capital and tangible assets plus depreciation. For each
division and associate company, the net working capital was computed to reflect
the company’s operational activity.
7 Previously explained for each industry
Nominal Growth Rates
Annuity Perpetuity
E&C 5,88% 2,87%
E&S 2,37% 2,34%
Ascendi 0,93% 0,93%
Martifer 4,96% 3,23%
Table 4 – Nominal Growth Rates
E2011 E&C E&S Ascendi Martifer EBITDA
M € 184 82 147 64 EBIT M € 111 54 79 31
Table 5 – EBITDA and EBIT
Each E&S division was assumed to follow different variables
Nominal Growth rates
Annuity Perpetuity
E&C 5,88% 2,87%
E&S 2,37% 2,34%
Ascendi 0,93% 0,93%
Martifer 4,96% 3,23% Each E&S division was assumed to follow different variables
Martifer’s revenues forecast was based on metallic construction division and renewable division
Martifer’s sales forecast was based on metallic construction division and renewable division
€M Stake Method EV EV/EBITDA Per
Share Discount
Rate
Terminal Value
Growth Rate
Company Divisions Engineering &
Construction 100% DCF 800 4,36 3,91 9,35% 2,87%
Environment & Services 100% DCF 669 8,16 3,27 9,34% 2,34%
Associated companies Ascendi 60% DCF 401 2,70 1,96 9,29% 0,93%
Holding 100% Martifer 38% DCF 75
0,37 9,91%
Other Assets
107 Total EV
2052 8 10 9,33% 2,05%
Net Debt E2011
1449
7 Minorities E2011
98
0
Equity E2011 505 3
Ascendi was assumed to follow the Portuguese inflation rate
Source: Analysts Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Analysts Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
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 7/33
€M Stake Method EV EV/EBITDA Per
Share Discount
Rate
Terminal Value
Growth Rate
Company Divisions
Engineering & Construction 100% DCF 800 4,36 3,91 9,35% 2,87%
Environment & Services 100% DCF 669 8,16 3,27 9,34% 2,34%
Associated companies
Ascendi 60% DCF 401 2,70 1,96 9,29% 0,93%
Holding 100%
Martifer 38% DCF 75
0,37 9,91%
Other Assets
107
Total EV
2052 8 10 9,33% 2,05%
Net Debt E2011
1449
7
Minorities E2011
98
0
Equity E2011
505
3
Number of Shares Outstanding
205
Target Price € per share
2,47
Last price € per share
1,68
Upside Potential
47%
Price as 02-June-2011
Macroeconomic Situation
After the crisis of 2008, once again, in 2011, politicians will be the key. In rich
countries, budget cuts are a top priority these days, which can cause an increase
in taxes and cut spending. The majority of these countries have deficits above
8% of GDP and a gross public debt over 99% of GDP. Sovereign borrowing is
increasing at its highest rate in history. The problems related to sovereign debt in
Greece and Ireland are affecting bond markets. As a consequence, governments
are trying to create a credible path to reduce their deficits in the medium term,
without damaging their own recovery. Across Europe, countries are raising
retirement ages, creating new rules and new organizations to encourage fiscal
honesty. The Eurozone growth is expected be 1% while Eastern Europe
countries grow at 2.8%, in 2011.
Different combinations of fiscal austerity and monetary policy may lead to
currency wars around the world.
Table 6 – Mota-Engil’s Valuation
Different combinations of fiscal and monetary policy may lead to currency wars
Different combinations of fiscal and monetary policy may lead to currency war
Different combinations of fiscal and monetary policy may lead to currency war
-6,00%
-4,00%
-2,00%
0,00%
2,00%
4,00%
6,00%
8,00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Real GDP growth rate - Central Europe
Graph 1- Central Europe Real GDP Growth
Source: Analysts Estimates
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Bloomberg Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
MOTA-ENGIL COMPANY REPORT
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EXCLUSIVELY FOR ACADEMIC PURPOSES (SEE DISCLOSURES AND DISCLAIMERS AT END OF DOCUMENT)
PAGE 8/33
Emerging countries may benefit from the present slowdown of the develop world.
Investment flows are changing from Europe and USA to Africa, Asia and Latin
America.
The Portuguese economy has been suffering severe difficulties, in the past
years. As a matter of fact, national accounts are restricted by high borrowing
costs. Consequently, the Portuguese Economy returns to a recession just after
2010. In fact, gross domestic product is expected to stagnate, until 2020, with a
possibly slight recover from then on.
Latin America is predicted to growth at a 4.2% rate, in 2011. Brazil is expected to
reinforce its position as a strong economy, presenting high growth rates, mainly
explained by the external continuous demand for the country’s commodities.
FIFA World Cup 2014, as well as, the Olympic Games 2016 may also contribute
to its success.
Africa is expected to grow at 4.5%, in 2011. This region will probably suffer some
adjustments caused by a reduction in oil demand. It is also important to refer that
some African countries are facing improvements in macroeconomic management
tools. Additionally, more discipline is being introduced as a consequence of
external financial supports.
Company overview
The company resulted from a merge between Mota & Companhia and Engil, in
2000. Mota-Engil is the largest Portuguese construction company listed in PSI 20
index, operating in Africa, Europe and America. In past years, the company has
been trying to expand its international exposure and diversify from its core
business, in order to achieve sustainable growth rates and increase its EBITDA
margins. In 2010, the company achieved an EBITDA of € 237m and a net profit
of € 36m.
Company description
Mota-Engil is a construction company operating in two distinct
divisions: Engineering & Construction (E&C) and Environment
and Services (E&S). Concerning the E&C division, Mota-Engil
has activities in infrastructures, buildings and real estate,
Latin America and Africa are expected to grow above 4% in 2011
Latin America and Africa are expected to grow above 4% in 2011
Latin America and Africa are expected to grow above 4% in 2011
Latin America and Africa are expected to grow above 4% in 2011
Graph 2 - Mota-Engil’s business divisions
Graph 3 - Mota-Engil's Corporate Structure
Portuguese Economy turns to a recession just after 2010
Latin America and Africa are expected to grow above 4% in 2011
Latin America and Africa are expected to grow above 4% in 2011
Latin America and Africa are expected to grow above 4% in 2011
Source: Mota-Engil Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil Revenues increase on investment structures
The world economic forum estimates an increase on
MOTA-ENGIL COMPANY REPORT
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EXCLUSIVELY FOR ACADEMIC PURPOSES (SEE DISCLOSURES AND DISCLAIMERS AT END OF DOCUMENT)
PAGE 9/33
mainly focus in Angola, Portugal and Poland. Infrastructures and buildings
represent more than 90% of the division’s revenues. In terms of EBITDA, Angola
is the most relevant country in this division. The E&S division centres its activities
in Waste, Water, Logistics and Multi-services, mainly focus in Portugal.
Moreover, logistics and waste are the most significant activities within this
division. The company changed the accounting method of its transport division
from full consolidation to equity consolidation. Furthermore, Mota-Engil has a
stake of 37.5% in Martifer, a Portuguese company present in the metallic
construction and in renewable energies.
Shareholder structure
With 62%, Mota-Engil is the main shareholder of the company. Privado Holding
SGPS, SA controls 5%, Nmás 1 Agencia de Valores SA holds 2% of the
company. Moreover, free-float represents 30% of the company. Mota-Engil’s
shares are traded in PSI20 index, the Portuguese main index. The company’s
shareholder structure reduces stock liquidity and the possibility of a successful
public tender, although it raises flexibility and decision making.
Construction Sector
The following paragraphs will describe an overview of the construction market,
and subsequently, a brief explanation of the valuation approach. Mota-Engil is
present in Portugal, Central Europe, Africa and America. This division is suffering
a reduction of its relevance in Portugal along with an increasing international
exposure, both in terms of revenues and EBITDA.
Market environment
After the crises of 2008, and as an attempt to stimulate the economy, the
Portuguese government invested in infrastructures. Large-scale public projects
EBITDA 2010 2011E 2012E 2013E 2014E 2015E 2016E
Portugal 42 35 35 42 44 45 46
Central Europe 8 9 11 11 12 13 14
Africa 107 134 150 160 168 183 196
America 5 5 5 5 5 6 6
Total 204 219 236 261 272 291 308
Free-float31%
Nmás de
Valores
5%
Privado Holding
2%
Mota Family62%
Shareholder Structure
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
2009 2010 E2011 E2012 E2013 E2014 E2015 E2016
Portugal Central Europe Africa America
After the crisis of 2008 the Portuguese government invested in infrastructure
The world economic forum estimates an increase on investment structures
The world economic forum
Graph 4 - Mota-Engil's Shareholder Structure
Graph 5 – E&C’s Total Revenues
Table 7 – E&C EBITDA Breakdown
Source: Mota-Engil Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analysts Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analysts Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
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 10/33
create employment in the short term and might boost the economic growth in the
long-run.
The World Economic Forum estimates an increase in the investment around the
world due to a combination of factors: population growth, urbanization and the
past underinvestment. This increase will come from developing economies,
which have a higher fiscal flexibility and a greater need for infrastructural
improvement. It is important to refer that Brazil is expected to spend €758 billion
on infrastructures, between 2011 and 2014. Mota-Engil has 59% of its revenues
in civil engineering, whereas 40% in non-residential and 1% in residential
buildings. In line with this, the analysis will be mainly focused in civil engineering
and non-residential buildings.
Portugal
In 2011, the civil engineering output is expected to decrease 2.34%. Moreover,
the memorandum of understanding signed between Portugal and Troika
establishes some regulations to reduce costs in this division. Due to this,
significant projects were postponed, in order to improve public accounts and,
consequently, the country’s external financing. Despite the Portuguese economic
reality, the contract concerning the high-speed train between Lisboa-Madrid was
signed. However, the second part of the project, adjudicated to Mota-Engil
(Lisboa-Poceirão) was suspended. Portugal is suffering some setbacks in some
important PPP projects, mainly in the road sector. Nevertheless, the reduction of
public costs related with infrastructural projects is not a new issue. The reduction
of the public investment in this sector led to a decrease of company’s margins,
like EBIDTA. In fact, the government budget for construction sector registers a
decreasing trend since 2004. Moreover, excluding 2009, the value of adjudicated
projects is decreasing.
Regarding the non-residential market, the output is expected to decrease 2.89%.
However, some relevant initiatives will occur, such as school modernization. The
deterioration of the political environment associated with the current economic
crisis might decrease the investor’s confidence, and consequently, reduce the
buildings permits and project deferrals until an economic recovery. This recovery
is expected to start in 2013, but due to the present economic scenario, and the
extremely high dependency on the behaviour of national exports, the forecasts
are associated with a high risk. In what concerns public investment, the number
of contracts is expected to decrease for the following years: 2012 and 2013.
0%
5%
10%
15%
20%
1996 1998 2000 2002 2004 2006 2008 2010 2012
GFCF / TOTAL GDP Total Gross Value Production as % of GDP
Since 2004, the government budget for the construction sector is decreasing
Since 2004, the government budget for the construction sector is decreasing
Since 2004, the government budget for the construction sector is decreasing
Since 2004, the government budget for the construction sector is decreasing
-3,00%
-2,00%
-1,00%
0,00%
1,00%
2,00%
3,00%
4,00%
5,00%
6,00%
19
96
19
97
19
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99
20
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E2
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6
Real GDP growth rate
0
500
1000
1500
2000
2500
2009 2010 2011E 2012E 2013E 2014E 2015E 2016E
E&C Revenues
E&C Revenues
€M
Graph 6 – E&C’s Total Revenues
increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Graph 7 – GFCF vs GVP
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Graph 8 – Portuguese Real GDP Growth Rate
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analysts Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Bloomberg
Revenues
increase on investment structures
Source: EuroConstruct Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Graph 7 – GFCF vs GPV
increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
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Regarding the housing market, new production is expected to decrease, as a
consequence of the current economic scenario. Once again, reconstruction and
maintenance will be the only activities to grow within this market, in the next 10
years. Concerning construction, Mota-Engil’s market share8 is 0.13% for the
residential market, 6.2% for the non-residential market and 4.99% for the civil
engineering market. We believe the company’s market share to remain stable for
the following years.
Portugal is losing its importance, both in terms of sales and EBITDA. In fact,
revenues decreased from €879 million, in 2009, to €664 million, in 2010. We
expect this reduction to continue until 2012. Due to the economic crisis, EBITDA
margins are expected to decrease in the next years.
Eastern Europe
Regarding Eastern Europe, Mota-Engil is mainly present in Poland in the civil
engineering market. The following paragraphs will focus on this specific country
and market.
In 2010, the civil engineering market has suffered some difficulties to accomplish
its financial plan, causing a stagnation of the market. However, from 2011 on, this
market is expected to grow above 6%, in nominal terms, mainly due to: airfield
runways, sport objects, water objects and other civil engineering works.
According to the Polish government estimations’, between 2008 and 2010, the
government spending in civil engineering was 33%, clearly below expectations.
In line with this, spending is expected to be transferred to the new programme
prepared by the Ministry of Infrastructure. Local government wants to: develop
the Polish road network; construct, extend and maintain a system of anti-flood
protection of the coast areas; construct a breakwater for the external program
until 2013; construct a water road from Vistula to Gdansk until 2013; prepare and
complete the Programme for the Euro 2012. Moreover, the recent economic
development is increasing the country’s needs concerning reparation and
construction of power units. It is expected an investment by fuel companies on
transfer infrastructures. Furthermore, until 2015, the country will increase its
investment on the national airports. However, after 2012, it is expected a
reduction of civil engineering market growth rate, caused by the completion of
many projects created for the EURO 2012.
8 Sales & Services /Total Gross Production Value.
0
10000
20000
30000
40000
50000
60000
2007 2008 2009 2010 2011 2012 2013
Czech Republic Hungary Poland Slovak Republic
€M
Polish government plans to develop several projects mainly, until 2013
Polish government plans to develop several projects mainly until 2013
Polish government plans to develop several projects mainly until 2013
Polish government plans to develop several projects mainly until 2013
Civil Engineering market is expected to decrease after the EURO 2012
Civil Engineering segment is expected to decrease after the EURO 2012
Civil Engineering segment is expected to decrease after the EURO 2012
Civil Engineering segment is expected to decrease after the
0
200
400
600
800
1000
2009 2010 E2011 E2012 E2013 E2014 E2015 E2016
Revenues
€M
Graph 9 – Evolution of Portuguese E&C Total Revenues Growth Rate
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Graph 10 – Eastern European Countries’s Gross Production Value Growth Rate
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: EuroConstruct Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
MOTA-ENGIL COMPANY REPORT
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In Eastern Europe, we expect Mota-Engil to have a double-digit increase of
revenues in 2011 and 2012 and a growth rate of 6%, in nominal terms, until
2016. The company’s market share is not expected to suffer any changes in this
market and EBITDA margins will remain constant in the next years.
America
Regarding America, Mota-Engil is present in Mexico and in Peru, although this
region has a slight significance for the E&C. In this sub-division, our projections
were not divided by the previous sub-segments: civil engineering, and residential
& non-residential buildings. However, the company wants to increase its market
share on this region. In 2010, Mota-Engil increased its activity in this region by
98%.
Currently, the company holds a portfolio of €251 million in Peru including a €59.5
million project in Mina de Ouro, in 2011. Moreover, in Mexico, the company
expects to increase its growth by taking advantage of the Mexican National
Infrastructure Programme through its Mexican subsidiary, Idinsa. Furthermore,
the company is expecting to enter in the Brazilian market, which has a huge
potential due to the FIFA World Cup 2014 and the Olympic Games 2016. Brazil is
not included in our estimations for this sub-division. Both, Peru and Mexico are
expected to grow at a rate higher than 4%, in real terms.
In XXI century we will assist to the increasing role of Latin America. Mota-Engil is
expected to increase its market share mostly in Peru, due to the high growth rate
the country will face between 2011 and 2013, which in the construction sector is
higher than 3%,in nominal terms. From 2013 to 2016, the country’s growth rate is
expected to increase more than 4%. Consequently, we predicted an increment in
revenues for the following years, in this sub-division. However, we adopted a
conservative approach by maintaining EBITDA margin constant at 6.02%, for the
following years next years. Mota-Engil’s market share is expected to grow 0.1%,
in 2012 and in 2013.
Africa
Mota-Engil is present in some countries in Africa, mainly in Angola. For more
than 64 years, the company developed important relations with the local
government and companies. Despite the global crisis, Angola is expected to grow
0,00%
1,00%
2,00%
3,00%
4,00%
5,00%
6,00%
7,00%
8,00%
9,00%
10,00%
2010 2011 2012 2013 2014 2015 2016
Peru Mexico Average construction growth rate
EBITDA margin in Angola was 16.1%, in 2010
EBITDA margin in Angola was 16.1% in 2010
EBITDA margin in Angola was 16.1% in 2010
EBITDA margin in Angola was
0
50
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150
200
250
300
350
400
450
2009 2010 2011 2012 2013 2014 2015 2016
Central Europe
Central Europe
€M
Graph 11 – Evolution of Central Europe’s E&C Total Revenues Growth Rate
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Graph 12 – Peru & Mexico - Real GDP and Construction Growth Growth Rate
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Graph 13 – Evolution of America’s E&C Total Revenues Growth Rate
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
0
20
40
60
80
100
120
2009 2010 E2011 E2012 E2013 E2014 E2015 E2016
America
America
€M
Source: Bloomberg; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
MOTA-ENGIL COMPANY REPORT
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PAGE 13/33
in the next years. In line with this, the company expects to raise its market share
in this country, by focusing on new industrial activities associated with
construction. As previously explained, the macroeconomic environment of some
African countries improved in the last years and Angola is not an exception. The
financial support agreement with the IMF is imposing some discipline to the
country’s policies. Moreover, the oil and diamond markets will increase by 7% in
real terms, in 2011. The strategic plan, for the next years, predicts a massive
infrastructure reconstruction and rehabilitation to support economic development
and to deliver public services. Angola plans to reconstruct highways, bridges,
cities, and also develop the fishery sector by investing in infrastructures, until
2013. Despite the potential growth of this country, companies usually deal with
payment delays, which may cause some working capital problems. However, the
risk of default may be reduced by oil revenues which provide a long-term
financing. Mota-Engil’s EBITDA margin in Angola was 16.1%, in 2010.
Mota-Engil is also present in other markets such as Malawi, Mozambique and
Cape Verde, mainly in maintenance and highway construction. Such countries
plan to improve their infrastructures in order to develop their economy. All these
countries will growth at a rate higher than 5%, in real terms. Regarding
Mozambique, the group increased its turnover in 262%. In addition, in 2011, we
expect Mota-Engil to increase its spending about €150 million. The African
market presents a particularity that deals with the fact that the main Portuguese
construction companies are partners in several consortiums.
The previous conclusions were made under the assumption that the market
would grow along with the nominal GDP, for all the present African Countries.
In this sub-division, the company operates in infrastructures, residential and non-
residential markets. Regarding the operational performance, this region is
expected to increase, both in terms of revenues and market share. In fact, the
market share is expected to increase 1%, in 2012 and 2013. EBITDA margin is
expected to be stable in 17.09%, in the following years.
Revenues Breakdown 2009 2010 E2011 E2012 E2013 E2014 E2015 E2016
Portugal 53,14% 41,53% 36,24% 33,78% 32,99% 32,47% 31,44% 30,73%
Central Europe 17,35% 14,95% 15,68% 16,60% 16,73% 17,01% 16,98% 17,08%
Africa 30% 39% 44% 45% 46% 46% 47% 48%
America 2,54% 5,19% 4,70% 4,46% 4,35% 4,27% 4,12% 4,02%
0
50
100
150
200
250
2009 2010 E2011 E2012 E2013 E2014 E2015 E2016
EBITDA
€M
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
35,00%
40,00%
2009 2010 E2011 E2012 E2013 E2014 E2015 E2016
Malawi Mozambique São Tomé and Príncipe Cape Verde
Mota-Engil is expected to increase its market share in Angola
Mota-Engil is expected to increase its market share in Angola
Mota-Engil is expected to increase its market share in Angola
Mota-Engil is expected to increase its market share in Angola
Graph 14 – African Countries’ Real GDP Growth Rate
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Graph 15 – E&C EBITDA in Africa Growth Rate
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Table 8 – E&C Revenues Breakdown
Source: Bloomberg Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
MOTA-ENGIL COMPANY REPORT
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PAGE 14/33
Valuation
In the E&C division, capital expenditures are estimated to grow in the next years.
This represents an annual increase of investments, which may expand the
company opportunities’ in this division. In fact, we expect capital expenditures to
be €142 million, in 2016.
This division was valued based under the assumptions that EBITDA margins will
be constant among all the sub-divisions, expect in Portugal. The market share
will increase in America and in Africa. Moreover, the forecasts were based in
Euroconstruct estimations and GDP growth rates, as previously explained. We
valued E&C assets in €3.91 per share.
Environment & Services
The following paragraphs will describe an overview of the construction market,
and subsequently, a brief explanation of the valuation approach.
In order to diversify from its core business, Mota-Engil invested in E&S division,
especially in waste management, water distribution, logistics and multi-services,
mainly in Portugal and Angola. However, they are also present in other
European, American and African countries, such as Brazil and Poland.
Million Euros 2011E 2012E 2013E 2014E 2015E 2016E Sales & Provision of
services 1800 1937 2033 2120 2255 2379 EBITDA 184 201 219 229 246 262
EBITDA Margin 10% 10% 11% 11% 11% 11% Wc Investment 10 8 9 5 9 7
Capex 109 113 111 116 136 142 FCFF 19 29 48 54 43 48 DFCF 19 27 40 41 31 32
EV (DEC 2011) 800 EV/EBITDA 4,36 Target Price € per share 3,91
0
5
10
15
20
25
30
35
40
45
2009 2010 E2011 E2012 E2013 E2014 E2015
Título do Gráfico
Waste Water Logitics Multiservices
M€
Table 9 – E&C Valuation
Graph 16 – E&S’s Total Revenues EBITDA Growth Rate
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
MOTA-ENGIL COMPANY REPORT
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PAGE 15/33
The company may take advantage of the investment made by the EU in Poland,
both in water and waste sub-divisions, which might increase the company’s
revenues in the country. Moreover, the polish government wants to raise its
energetic efficiency, which may increase the national competitiveness in this
country. In Africa, Mota-Engil might take advantage of the economic growth,
where there is huge necessity for improvement in water supply and sanitation
systems. Regarding Brazil, some improvements have to be made in these areas.
As previously explained, we concluded that the sub-division of waste and water
depends mostly on household consumption, since its clients are households. We
expect the household consumption to increase in Brazil, Angola and Poland and
to decrease in Portugal, in 2011 and stagnated, until 2020.
The E&S was partially affected by the current Portuguese crisis. Between 2009
and 2010, the EBITDA margin increased in all sub-divisions, except in water
distribution and multi-services. The E&S was partially affected by the current
Portuguese crisis. According to the Organisation for Economic Co-operation and
Development (OCDE), Portugal has to increase the efficiency and quality of its
environment policies. The “OCDE Environment Performance Review Portugal
2011” report states that domestic waste is affecting the water quality and the
industrial & urban waste is increasing. Some of the measures adopted by the
Portuguese government, regarding environmental taxes, will improve the fiscal
sustainability. Also, the economic activity may increase associated with the
environmental market.
However, the national legislative elections will have impacts on this division.
Partido Social Democrata (PSD) wants to increase the efficiency in energy
consumption. Either position will benefit Mota-Engil, which might take advantage
of the new government initiatives.
As previously explained, waste and water sub-divisions are assumed to follow
household consumption. However, the last sub-division is relatively stable, since
it depends mostly on concession contracts with boroughs. We assume multi-
services sub-division to follow the civil engineering division. As mentioned before,
logistics was assumed to follow the country’s imports and the exports. In fact,
external transactions are highly sensitive to the economic reality, both at national
and international levels. In 2010, logistics were the most relevant sub-division for
the company, followed by waste, water and multi-services, both in terms of
revenues and EBITDA. We expect this trend to remain constant.
-20,00%
-10,00%
0,00%
10,00%
20,00%
Change of Imports of Goods
Change of Exports of Goods
PSD election may have a positive impact on E&S
Legislative elections will have a positive impact on E&S
Legislative elections will have a positive impact on E&S
Legislative elections will have a positive impact on E&S
Portuguese’s fiscal sustainability will improve
Portuguese’s fiscal sustainability will improve
Portuguese’s fiscal sustainability will improve
Portuguese’s fiscal sustainability will improve
Graph 17 – Private Consumption vs Real GDP Growth Rate
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Graph 18 – Change in Imports and Exports Growth Rate
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: OCDE 2011 Report Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Bloomberg Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
MOTA-ENGIL COMPANY REPORT
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Waste Management
Waste management, in Portugal, has a relatively low level of privatization when
compared to other European countries. The memorandum of understanding
between Portugal and Troika predicts privatizations for this sub-division. These
structural changes might represent the acquisition of some public companies,
and may increase of the Mota-Engil’s market share. Moreover, Industrial and
urban waste are expanding in Portugal, which can cause an increase of the
company’s revenues. However, we expect EBITDA margin to remain stable, in
the next years. The economic crises that the country is facing may affect the
financial stability of some companies in this division, although the economic
sustainability is expected to remain unchanged. Mota-Engil owns Suma
subgroup, a market leader in the national waste market, with more than ten years
of experience. The company owns 50% of waste management market share, in
industrial and commercial synergies. As a consequence of its strategic
internationalization plan, Suma is present in foreign markets. In fact, this
company is present in Poland, a highly competitive country given that projects
are award by the condominium.
Regarding Mota-Engil’s international exposure, the company acquired, in 2010,
Vista Waste Management in Angola, a services providing company for waste
collection, environmental education and urban cleaning. It is important to keep in
mind that waste is one of the main priorities in Angola, for the following years. As
for Brazil, Mota-Engil owns Geo Vision, a company with operations in general
waste management.
We expect an increase of Mota-Engil’s market share in Angola and Brazil and a
decline in Poland and Portugal, for the following years. The relationship that
Mota-Engil has with local companies and with the government might reinforce the
company’s position in Angola. Waste management is the second largest sub-
division of E&S, with revenues of €119 million, in 2010. We believe that revenues
EBITDA 2010 2011E 2012E 2013E 2014E 2015E 2016E
Waste 32 32 33 33 33 34 34
Water 18 18 18 18 18 18 18
Logistics 32 33 34 35 36 37 39
Multi-Services 4 4 4 4 4 4 4
Total 81 82 83 85 86 88 90
EBITDA Margin 2010 E2011 E2012
Waste 26,89% 26,89% 26,89%
100
110
120
130
20
09
20
10
E2
01
1
E2
01
2
E2
01
3
E2
01
4
E2
01
5
E2
01
6
Waste
Waste
M€
Mota-Engil has a market share of 50% in this division
Mota-Engil has 50% of market share in this division
Mota-Engil has 50% of market share in this division
Mota-Engil has 50% of market share in this division
Waste is a strategic priority in Angola
Waste is a strategic priority in Angola
Waste is a strategic priority in Angola
Waste is a strategic priority in Angola
Table 10 – E&S EBITDA Breakdown
Table 11 – Waste Division: EBITDA Margin
Graph 18 – Waste division’s Total Revenues
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
MOTA-ENGIL COMPANY REPORT
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PAGE 17/33
will increase until 2016 and EBITDA margins are expected to remain stable at
27%, in the following years.
Water Distribution
The water distribution sub-division in Portugal suffers from a relatively low level of
privatization. As it was previously mentioned, the memorandum of understanding
between Portugal and Troika encouraged privatizations in general. This might
represent the acquisition of some public companies and a possible increase of
the company’s market share. In Portugal, there is a considerable disparity in
terms of the prices caused by the different prices applied by management
entities. In some locations, costs are higher than tariffs. Also, there is a difference
in prices between management entities, across the country. On average, the
price of water supply is higher for the consumer in concessions, when compared
municipalities by €48 per 120m3 of consumption. The average price of a
concession is nearly €131.61 and €83.61 for municipalities9. Regarding sewage,
concessions are cheaper than SMAS and EP but more expensive than municipal
supply. The cost a sewage supply concession for the consumer is, on average,
€54.51 for 120m3 of consumption. Mota-Engil has activities in water supply and
sewage concessions controlled by the subsidiaries of Indaqua Subgroup, the
second largest sub-division within E&S.
As previously explained, water distribution was assumed to follow household
consumption. Due to the current Portuguese economic crisis, household
consumption is estimated to decrease, in 2011. Consequently, Indaqua is
expected to reduce its revenues by 0.66%, in nominal terms. From 2012 on, this
subsidiary will probably increase its revenues and maintain its EBITDA margin
around 23%. Mota-Engil’s main competitive advantage, in this sub-division, is the
knowhow acknowledged by the company regarding concessions and project
financing. According to the memorandum of understanding signed between
the IMF and Portugal, the national government should prepare an inventory of
assets owned by municipalities to examine the scope for privatization. Moreover,
Indaqua might be able to improve municipalities’ water networks and to reduce
the water supply prices. We expect Indaqua to maintain its market position, due
to its experience in the field and the maturity of the market. Regarding foreign
9 Fonte:APDA.
EBITDA Margin 2010 E2011 E2012
Water 23,38% 23,38% 23,38%
Portugal has a considerable description in prices along the country
Portugal has huge differences in prices along the country
Portugal has huge differences in prices along the country
Portugal has huge differences in prices along the country Mota-Engil has activities in water sub-division controlled by the subsidiaries of Indaqua
Mota-Engil has a subsidiary which is the second biggest company in the Portuguese market
Mota-Engil has a subsidiary which is the second biggest company in the Portuguese market
Mota-Engil has a subsidiary which is the second biggest company in the Portuguese market
Table 12 – Water Division: EBITDA Margin
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
MOTA-ENGIL COMPANY REPORT
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PAGE 18/33
markets, Indaqua is planning to expand its activity to countries such as Poland,
Angola, Peru and Brazil.
Logistics
Despite the 2008 global crises, we expect an increase in transportation of
merchandise at a global level. The continuous globalization of international
markets will assure, and support a growth rate around 3% of the logistic sub-
division, in Portugal. The infrastructural structure of this sub-division has some
bottlenecks that should be solved to improve the competitiveness of Portuguese
companies. Logistics, as a trading base between Portugal and the rest of the
world, may contribute to the economic development of the country. Portugal has
to increase the merchandize traded and to organize the transportation market to
raise its competitiveness. To achieve these goals, the national government
defined a strategy based on the development of logistics, along with the market
needs. The strategy defined by the government for this sub-division gives an
important role to the private sector, which is expected to promote and manage
some infrastructures that already exist and to create new ones.
As private company, Mota-Engil has a crucial role in this sub-division. Mota-
Engil’s main activities, in this sub-division, are related to road-rail terminals,
integrated logistics and carriage of goods by rail. As a market leader in Port’s
containers terminals, Mota-Engil has revenues of €159 millions, in 2010. This
division is the most exposed to changes in the global economy. Logistics are
dependent on Portuguese imports and exports. Despite, the current economic
situation, the company improved its results, both in terms of revenues and
EBITDA, mainly caused by the growth in the Portuguese exports. Over the past
years, Mota-Engil gained most of the ports concessions’. Therefore, the
company’s market share is near 80% concerning containers handling. The
principal sub-division subsidiary in logistics is TERTIR, market leader in port
container handling.
We expect an increase in revenues and EBITDA due to the probable evolution of
national exports and imports. From 2013 to 2016, exports are expected to
increase more than 4.5% and imports are expected to increase more than 2.5%
for the same period. The EBITDA margins are expected to remain stable around
20%. Moreover, we expect TERTIR to maintain its leading position in this market
due to the integrated logistics solutions that the company is providing. In fact, the
0,00%
2,00%
4,00%
6,00%
E2011 E2012 E2013 E2014 E2015 E2016
Logistics
Logistics is expected to grow around 3% in Portugal for the following years
Logistics is expected to grow around 3% in Portuga next years
Logistics is expected to grow around 3% in Portuga next years
Logistics is expected to grow around 3% in Portuga next years
0
50
100
150
200
250
2009 2010 E2011 E2012 E2013 E2014 E2015 E2016
Logistics
Logistics
€M
Graph 19 – Logistics division’s Total Revenues
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Logistics will contribute to the
Portuguese economic growth
Graph 20 – Logistics division’s Change in EBITDA
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
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 19/33
company invested in integrated solutions, which promotes cross-cutting and
integration of assets, in port areas. In 2010, Mota-Engil won a concession in
Peru, which is a signal of the internationalization effort that is being made.
Multi-Services
Regarding multi-services sub-division, Mota-Engil has a number of companies
engaged in the provision of services, although they are not part of the company’s
core business. Mota-Engil offers services such as building and facility
maintenance, rehabilitation of pipelines, green spaces, car parks, and electronic
markets among others, mainly in Portugal. This sub-division deals with a high
competition level, mainly caused by the fact that the majority of the projects do
not require a considerable investment. In fact, Mota-Engil does not have a
competitive advantage in this market due to the fact that are already companies
specialized in this type of services. Multi-services reduced its sales from 2009 to
2010. The EBITDA margin decreased from 7.55% to 6.9%, in the same period.
We expect the company’s EBITDA margin to be constant for next years. Given
that, most services provided by this sub-division complement civil engineering
projects, we expect a reduction in Mota-Engil’s revenues, for the next 2 years,
and a slight increase from 2013 on.
Revenues Breakdown 2009 2010 E2011 E2012 E2013 E2014 E2015 E2016
Waste 34,04% 29,02% 29,11% 29,06% 28,70% 28,31% 27,93% 27,52%
Water 14,59% 18,78% 18,51% 18,35% 18,07% 17,78% 17,46% 17,13%
Logistics 44,38% 38,78% 39,40% 39,80% 40,38% 40,97% 41,57% 42,20%
Multi-Services 16,11% 14,15% 13,70% 13,51% 13,56% 13,63% 13,71% 13,80%
Valuation E&S division
Capital expenditures are estimated to be around €30 million. It represents a
significant amount to maintain, or even increase, the company’s position in this
market. In fact, we expect capital expenditures to be €28 million, in 2016.
CAPEX Breakdown E2011 E2012 E2013 E2014 E2015 E2016
E&S 28 30 32 33 35 28
Logistics will play an important role on Portuguese economic growth
Logistics will play an important role on Portuguese economic growth
Logistics will play an important role on Portuguese economic growth
Logistics will play an important role on Portuguese economic growth
3,6
3,8
4
4,2
4,4
2009
2010
E201
1
E201
2
E201
3
E201
4
E201
5
E201
6
Multi-services Segment
EBITDA
€M
Multi-Services division faces a tough competition in the market
Multi-Services division faces a huge competition in the market
Multi-Services division faces a tough competition in the market
Multi-Services division faces a huge competition in the market
Graph 21 – Multi-Services EBITDA Evolution
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Table 13 – E&S Revenues Breakdown
Table 14 – E&S CAPEX Breakdown
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
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 20/33
This division was valued under the assumption that EBITDA margins will be
constant among all the sub-divisions and the market share will remain stable.
Concerning forecasts, we assumed water and waste to follow household
consumption growth. For logistics, we computed an average between imports
and exports. The growth path in multi-services is expected to be similar to the
civil engineering division, as previously explained. E&S assets value € 3.27 per
share.
2011E 2012E 2013E 2014E 2015E 2016E
Sales & Provision of services 413 419 427 437 447 458 Operating profit before interest, depreciation & provisions (EBITDA) 82 83 85 86 88 90
EBITDA Margin 20% 20% 20% 20% 20% 20%
Wc Investment -1 -2 -3 -3 -1 -1
Capex 28 30 32 33 35 28
FCFF 39 34 36 35 35 36
DFCF 36 33 31 27 24 27
WACC 9,34%
EV (DEC 2011) 669
EV/EBITDA 8,16
Target Price € per share 3,27
Ascendi
The following paragraphs will describe an overview of the transport concession
market, and subsequently, a brief explanation of the valuation approach. In the
transport concession area, Ascendi is a Mota-Engil’s associated company and
results from a partnership between Banco Espírito Santo Group and Mota-Engil
Group. Ascendi is present in Portugal, Spain, Latin America and Africa. The
company’s portfolio is composed by €11 billion of global investment, more than
€850 million assets, near 3.000 km in road and has 1.500 km under exploration.
The revenues associated to this are worth €117 million, in 2009 and the Net
Debt/EBITDA ratio was 12.4x, in 2009, as a consequence of number of
concessions phase.
Given that Mota-Engil changed its accounting method for transport concession
from full consolidation to equity consolidation, the visibility of this division was
reduced. As a consequence, no audited public information is available for
analysts in what concerns Ascendi’s financial data. Based on that, and
158
160
162
164
166
168
170
172
174
20
10
20
11
E
20
12
E
20
13
E
20
14
E
20
15
E
20
16
E
Sales & Provision of services
Revenues
M€
Table 15 – E&S Valuation
Graph 22 – Ascendi’s Total Revenues
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
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 21/33
considering the information presented on consolidated report & accounts of
Mota-Engil 2009, revenue were estimated from 2010 on. Given that Mota-Engil is
receiving a fee from the local government related to the number of motorways,
which are available for use, they are less exposed to traffic risk. The fact that
Ascendi’s portfolio is also composed by network availability, explains why they
have higher margins than their peers, which are more exposed to traffic changes.
It is important to refer that, due to the Portuguese economic situation, Ascendi
might suffer from payment issues, since its main client, Estradas de Portugal, is
facing liquidity problems.
Despite the reduction of the visibility of this division, we decided to valuate
Ascendi, based under the assumption that the company will maintain its volume
of revenues and its margins, throughout time. Ascendi’s revenues are expected
to growth with the Portuguese inflation rate. As previously explained, the
company receives a fee from the government and the majority of its
concessions are in Portugal. By 2016, we expect the company’s EBITDA
margin to be 90%. Ascendi is increasing its international presence with
concessions in: Spain, Mexico, Brazil and Mozambique. In 2010, the company
won a concession in Ka Tembe, Mozambique. We expect an increase of its
international exposure in this continent. Nowadays, Portugal represents more
than 78% of the company’s investment, justified by the number of concessions in
Portugal. In fact, Ascendi has 10 concessions in Portugal and 5 concessions
abroad. The total portfolio of the company is presented below:
Concessionaire Actual holding
% Foreseen Holding
% Km Ending Investment
Portugal Lusoponte - Travessia do Tejo 38,02 38,02 19,5 2030 897
Auto-Estradas do Norte 74,87 74,87 175 2029 1272
Auto-Estradas da Beira Interior
22,23 178 2029 812
Auto-Estradas da Costa da Prata 80,2 80,2 109,6 2030 499
Auto-Estradas da Beiras Litoral e Alta 80,2 80,2 172,5 2031 1130
Auto-Estradas do Grande Porto 80,2 80,2 55,5 2032 841
Concessões Rodovíarias da Madeira
4,75 44,2 2025 390
Auto-Estradas da Grande Lisboa
80,2 91,1 2036 290
Estradas do Douro Interior 8,85 8,85 242,3 2038 931
Estradas do Pinhal Interior 8,09 8,09 520,3 2040 1429
Total Portugal
1608
8491
2010 2011E 2012E
EBITDA margin 89,74% 89,74% 89,74%
78% of Ascendi’s investment is in Portugal
78% of Ascendi’s investment is in Portugal
78% of Ascendi’s investment is in Portugal
78% of Ascendi’s investment is in Portugal
0,00%
0,50%
1,00%
1,50%
2,00%
2,50%
3,00%
2010 E2011 E2012 E2013 E2014 E2015 E2016
Inflation Rate
Graph 23 – Portuguese Inflation Rate
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Table 17 – Ascendi’s Portfolio
Table 16 – Ascendi’s EBITDA Margin
Source: Bloomberg Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
MOTA-ENGIL COMPANY REPORT
THIS DOCUMENT IS NOT AN INVESTMENT RECOMMENDATION AND SHALL BE USED
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PAGE 22/33
Concessionaire Actual holding
%
Foreseen Holding
% Km Ending Investment
Spain Autovia de Los Vinedos
50 75 2033 210
Autopista Madrid - Toledo
15 81 2040 600 Total Spain
156
810
Latin America Mexico - Concessionaria Perote 30 50 60 2038 389
Brazil - Concessionaria Tietê
40 415 2039 470 Total Latin America
475
859
Africa Mozambique - Nova Ponte de Tete 40 40 701 2039 151
Total Africa
701
151
Railway Concessions MTS - Metro, Transportes do Sul 18,09 24,89 20 2032 338
TOTAL
3046
10854
The capital expenditure is expected to reach €107 million, in 2016. This is
increase might be explained by future concessions under construction stage.
All Ascendi’s concessions were valuated together, using a DCF method. We
based our valuation under the assumption that EBITDA margin and market share
will remain constant over the years. To obtain Ascendi’s beta, we applied the
same method of Mota-Engil’s valuation. Brisa, Actividades de Construccion e
Servicios, Eiffage and Autostrada Torino-Milano were chosen as comparables.
The value obtained for the discount rate 9.29%. Additionally, the terminal value
that obtained for the associated company was € 401 million. Ascendi’s assets
value € 1.96 per share.
2011E 2012E 2013E 2014E 2015E 2016E
Capex Ascendi 68 85 79 82 84 107
The value obtained for the Ascendi’s discount rate was 9.29%
Ascendi’s discount rate obtained was 8,84%
Ascendi’s discount rate obtained was 8,84%
Ascendi’s discount rate obtained was 8,84%
Table 17 – Ascendi’s Portfolio
Table 18 – Ascendi’s Capex
Source: Mota-Engil Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
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 23/33
Martifer
The following paragraphs will describe an overview of the metallic construction
and renewable energy market, and subsequently, a brief explanation of the
valuation approach. Martifer SGPS SA, is a Mota-Engil’s associate company,
operating in 21 countries with 16 industrial units. The company is mainly focused
on metallic constructions and renewable energies. Martifer is one of the main
players of the metallic construction division, due to its specialization in activities
such as: steel structures, aluminium and stainless steel. Martifer main projects’
are bridges, airports, warehouses and towers. In 2010, for the metallic
construction division, the company reached €292 million in revenues, €22 million
in EBITDA and a net profit of €0.4 million. Regarding renewable energy, the
company is divided in three business divisions: solar energy, wind and energy
equipments. Mainly focused on the solar sub-division, Martifer has activities
particularly on distribution and engineering, procurement and construction. The
company offers products like: photovoltaic modules, trackers, photovoltaic kits. In
2010, the company reached €221 million in revenues, €22 million in EBITDA and
a net profit of €10.4 million in solar division. According to the main guidelines of
the company for 2013, Martifer is expected to focus its activity on metallic
construction mainly in Europe, Angola and Brazil. Moreover, in the solar sub-
2011E 2012E 2013E 2014E 2015E 2016E
Sales 163 165 166 168 169 172
EBITDA 147 148 149 150 152 154
EBITDA Margin 90% 90% 90% 90% 90% 90%
Wc Investment 0 0 0 0 5 -5
Capex 68 85 79 82 84 107
FCFF 56 39 45 44 38 32
DFCF 58 38 40 36 32 16
WACC 9,29%
EV (DEC 2011) 401
EV/EBITDA 2,73
Price per Share 1,96
Mota-Engil owns 37.5% of Martifer.
Mota Engil owns 37.5% of Martifer.
Mota Engil owns 37.5% of Martifer.
Mota Engil owns 37.5% of Martifer.
0
100
200
300
400
500
600
700
800
900
2010 E2011 E2012 E2013 E2014 E2015 E2016
Revenues
Revenues
€M
Table 19 – Ascendi’s Valuation
Graph 24 – Martifer’s Total Revenues
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
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 24/33
-5,00%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
E2011 E2012 E2013 E2014 E2015 E2016
Portugal Spain Eastern Europe Others Angola
division, the company plans to invest in attractive projects in terms of profit
margin.
T
o
valuate Martifer, as previously explained, we used the same methodology of
Mota-Engil. Furthermore, we projected revenues based on the growth rates of
metallic construction and renewable energy sector. Given that the main projects
of the company are at an infrastructural level, we assumed that the metallic
construction will grow at the same rate as the civil engineering market10
of each
country where the company is present. Moreover, we assumed that the
company’s market share will remain constant due to a reduction on
the company’s exposure to the Iberian market and an increase on
its positions in other regions.
Concerning the renewable energy division, we concluded that the
solar energy sub-division represents the majority of this division. In
2010, Martifer received an award for “Best Renewable Energy Solution – Europe”
in the “New Economy Magazine”, which aims to recognize companies’ innovative
and competitive qualities within this market. Solar energy, the main renewable
energy sub-division, depends on European tariff structures, European demand
and polysilicon supply. By 2020, the European Union wants to achieve 20% of its
energy consumption on renewable energy. In line with this, solar energy would
have an important role. As the cost of solar modules decreases, this technology
is becoming a competitive form of energy. Moreover, polysilicon price decreased,
in January 2011 and this trend is expected to continue in the following years.
Additionally, the German Environment ministry, the world’s largest solar market,
and German Solar Industry, agreed to create a flexible tariff adjustment, in 2011.
We believe that wind and energy equipment, the other renewable sub-divisions
will follow the European Union renewable strategy for 2020. In line
with this, we based our forecasts on future polysilicon spot price
and on European Union renewable strategy for 2020. We
assumed the company’s market share to remain constant, as a
consequence of the company’s focus on projects with attractive margins. In 2011,
the growth rate in the renewable energy division is expected to be 10%.
10
Civil engineering growth rate was previous forecasted and explained in the construction segment of Mota Engil.
Million Euros 2010 E2011 E2012 E2013 E2014 E2015 E2016
EBITDA 59 64 68 72 75 79 82
EBIT -21 31 35 38 40 41 45
Net Profit -52 6 53 59 62 65 69
Metallic Construction Revenues Growth Nominal Terms
E2011 E2012 E2013 E2014 E2015 E2016
6,58% 5,15% 4,77% 3,66% 6,13% 5,61%
Polysilicon Price
E2011 E2012
78,93 78,46
Renewable energy Sector Revenues Growth - Nominal Terms
E2011 E2012 E2013 E2014 E2015 E2016
10,01% 8,01% 7,01% 4,15% 4,16% 4,16%
Table 20 – Metallic Construction Growth
Graph 25 – Metallic Construction Growth by Country
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Table 20 – Martifer’s Financial Information
Table 21 – Polysilicon Price
Table 22 – Renewable Division Growth
Source: EuroConstruct; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Mota-Engil; Analyst Estimates
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Analyst Estimates Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
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 25/33
Considering the company’s strategy of focusing on metallic construction, EBITDA
Margin is expected to remain at 9.74%, until 2016. However, Martifer’s renewable
energy divisions is expected to register a significant increase.
Valuation Martifer
In previous years, Martifer has invested large amount on capital expenditures.
We expect a reduction in the investment on capital expenditure for the next
years, reaching €21 million, in 2016.
The company’s beta was obtained by using its own stock returns, as previously
explained. The cost of equity obtained was 10.29% and the cost of debt11
(based on Portuguese Yield Curve and on Euribor forecasts) was 12.29%.
Consequently, the discount rate obtained for Martifer was 10.35%. Usually, to
obtain the Mota-Engil’s terminal value, analysts use the market capitalization of
Martifer. However, we believe that the market is undervaluing Martifer, so we
decided to value this Mota-Engil’s associated company through the DCF method.
The value obtained was € 702 million, which means that the target price for
Martifer has an upside potential of 40%12, until December 2011.
E2011 E2012 E2013 E2014 E2015 E2016
Sales & Provision of services 655 697 738 766 806 846
EBITDA 64 68 72 75 79 82
EBITDA Margin 9,74% 9,74% 9,74% 9,74% 9,74% 9,74%
Wc Investment -5 -9 39 11 15 15
Capex 10 8 2 17 11 16
FCFF 71 78 42 57 60 49
DFCF 71 71 34 43 41 31
WACC 9,91% EV (DEC 2011) 702 EV/EBITDA 11,01
11
Previously explained on Mota Engil debt valuation. 12
Data from 02-June-2011.
Million Euros E2011 E2012 E2013 E2014 E2015 E2016
Capex 10 8 2 17 11 16
EBITDA margin is expected to be around 9.74% in the following years
EBITDA margin is expected to be around 9.74% in the following years
EBITDA margin is expected to be around 9.74% in the following years
EBITDA margin is expected to be around 9.74% in the following years
The discount rate used for Martifer was 10.35%
The discount rate used for Martifer was lalala
The discount rate used for Martifer was lalala
The discount rate used for Martifer was lalala
Table 23 – Martifer’s Capex
Table 24 – Martifer’s Valuation
Source: Analyst Estimates
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
Source: Analyst Estimates
Revenues increase on investment structures
The world economic forum estimates an increase on investment structures
The world economic forum estimates an increase on investment structures
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 26/33
Financial Statements
2010 2011E 2012E 2013E 2014E 2015E 2016E
Income Statement
Sales & Provision of services 2004 2210 2351 2456 2552 2698 2833 Costs 1767 1949 2073 2157 2243 2368 2486 EBITDA 237 261 278 299 310 330 348 EBITDA Margin 11,83% 11,81% 11,84% 12,17% 12,13% 12,24% 12,27% DA 87 85 93 100 107 113 122 Other results 18 20 22 22 23 24 25 EBIT 132 156 164 175 177 189 195 Interest 51 85,12 86 118 122 151 149 Gains / Losses on Associate companies 7 7 7 7 7 7 7 EBT 81 71 78 58 56 39 47 Tax 19 18 20 15 14 10 12 Taxes 25,20% 25,20% 25,20% 25,20% 25,20% 25,20% Minority Interest 33 29 32 23 23 16 19 Net Profit 29 24 26 20 19 13 16 Net Profit (to the group) 36 31 33 27 26 20 23 Net Income to Equity holders 22 25 18 18 12 15 EPS 0,14 0,16 0,12 0,12 0,08 0,11
MOTA-ENGIL COMPANY REPORT
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PAGE 27/33
2010 2011E 2012E 2013E 2014E 2015E 2016E
Balance Sheet
Assets Non Current
Intangible & Goodwill assets 400 400 400 400 400 400 400
Fixed Assets 569 620 675 715 762 817 868
Customers and other debtors (Long Term) 61 65 69 74 76 82 87
Financial Investments 582 582 582 582 582 582 582
Total Non Current Assets 1612 1667 1731 1771 1821 1882 1937
Current Assets Customers & other debtors &
inventories 1514 1537 1688 1658 1780 1776 1850
Other Current Assets 330 417 475 515 555 614 669
Total current assets 1844 1954 2163 2173 2335 2390 2520
Total Assets 3456 3620 3895 3944 4178 4272 4456
Liabilities
Net debt 1215 1138 1313 1234 1389 1329 1380
Net Debt Adjustment
-29 -60 -89 -90 -127 -147
Suppliers & sundry creditors 1154 1084 1221 1127 1248 1171 1206
Other Liabilities 606 922 882 1117 1053 1313 1407
Total Liabilities 2975 3116 3356 3388 3600 3685 3847
Equity
Net Income 36 31 33 27 26 20 23
Share Cap; Reserves; Retained Earnings 445 474 505 529 552 567 586
Dividends
Total Equity 481 505 539 556 578 587 609
Total Equity & Liabilities 3456 3620 3895 3944 4178 4272 4456
MOTA-ENGIL COMPANY REPORT
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PAGE 28/33
Appendix – Cash Flow Statements
2010 2011E 2012E 2013E 2014E 2015E 2016E
Cash Flow Statement
Net Profit 36 31 33 27 26 20 23
DA 87 85 93 100 107 113 122
CashFlow from operating activities 123 116 126 127 133 134 145
Net Working Capital -35 -132 116 -125 107 -121 4
Capex 79 135 148 141 154 169 172
CashFlow from inv. Activities 44 3 269 15 261 47 176
Change in Financial Debt 102 -518 -174 -347 -347 -347 -177
FCFE 181 -405 -317 -235 -475 -261 -208
Change in Equity 21 -36 -31 -33 -27 -26 -20
Cash Flow from financing activities 21 -36 -31 -33 -27 -26 -20
Cash and cash Equivalents
-441 -348 -269 -502 -287 -228
E&C
Cash Flow Statement 2010 2011 2012 2013 2014 2015 2016 2021 TV
Sales & Provision of services 1599 1800 1937 2033 2120 2255 2379
Costs Fixed 1437 1617 1736 1814 1892 2009 2118
EBITDA 162 184 201 219 229 246 262
EBITDA Margin 10,13% 10,21% 10,37% 10,76% 10,79% 10,92% 10,99%
DA 55 58 66 73 78 83 91
Other results 13 15 16 16 17 18 19
EBIT + Gains & Losses on Martifer 93 109 117 128 132 143 149
% Tax 26,27% 26,27% 26,27% 26,27% 26,27% 26,27% 26,27%
Taxes 24 29 31 34 35 37 39
Tax adjustment -10 0 0 0 0 0 0
NOPLAT 78 80 86 94 97 106 110
Depreciation 55 58 66 73 78 83 91
Net Working Capital 52 10 8 9 5 9 7
Capex (tangible assets) 79 109 113 111 116 136 142
FCFF 2 19 31 46 54 45 52 219 757
Adjusted CashFlow 19 29 48 54 44 50 215 740
DCF 19 27 40 41 31 32 137 473
NPV 800
MOTA-ENGIL COMPANY REPORT
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PAGE 29/33
E&S
Million Euros 2010 2011 2012 2013 2014 2015 2016 2021 TV
Sales & Provision of services 410 413 419 427 437 447 458
Costs 329 331 336 343 350 358 367
EBITDA 81 82 83 85 86 88 90
EBITDA Margin 19,76% 19,82% 19,85% 19,83% 19,81% 19,78% 19,76%
DA 30 24 25 26 27 28 29
Other results 4 4 4 4 4 4 4
EBIT + Gains and Losses 45 52 52 52 51 51 50
% Tax 22,83% 22,83% 22,83% 22,83% 22,83% 22,83% 22,83%
Taxes 10 12 12 12 12 12 12
Tax Ad -7 0 0 0 0 0 0
NOPLAT 28 40 40 40 39 39 38
Depreciation 30 24 25 26 27 28 29
Net Working Capital 83 -1 -2 -3 -3 -4 -4
Capex (tangible assets) -3 28 30 32 33 35 28
0 1 2 3 4 5 5 5
FCFF -22 36 37 37 36 35 43 173 600
Adjusted FCFF
36 36 37 36 35 43 171 593
DCF
36 33 31 27 24 27 110 380
NPV
669
Ascendi
Cash Flow Statement 2010 2011E 2012E 2013E 2014E 2015E 2016E TV
Sales & Provision of services 163 163 165 166 168 169 172
Costs 17 17 17 17 17 17 18
EBITDA 147 147 148 149 150 152 154
EBITDA Margin 89,74% 89,74% 89,74% 89,74% 89,74% 89,74% 89,74%
DA 49 68 68 69 69 70 70
Other results 0 0 0 0 0 0 0
EBIT + Gains and Losses 98 79 80 81 81 82 84
% Tax 26,85% 26,85% 26,85% 26,85% 26,85% 26,85% 26,85%
Taxes 26 21 22 22 22 22 23
Tax Ad 0 0 0 0 0 0 0
NOPLAT 72 58 58 59 59 60 61
Depreciation 49 68 68 69 69 70 70
Net Working Capital 0 0 0 0 0 0 0
Capex (tangible assets) 510 68 85 79 82 84 107
FCFF -389 58 41 48 47 46 24 286
DCF 58 38 40 36 33 16 187
Adjusted DCF 58 38 40 36 33 16 186
NPV 407
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PAGE 30/33
Martifer
Million Euros 2010 E2011 E2012 E2013 E2014 E2015 E2016 FV
Cash Flow Statement
Sales & Provision of services 606 655 697 738 766 806 846
Costs 547 591 629 666 692 728 764
EBITDA 59 64 68 72 75 79 82
EBITDA Margin 9,74% 9,74% 9,74% 9,74% 9,74% 9,74% 9,74%
DA 26 24 23 22 21 21 20
Other results 54 9 10 12 13 17 18
EBIT + Gains and Losses 19 74 81 87 91 94 101
% Tax 29,97% 29,97% 29,97% 29,97% 29,97% 29,97% 29,97%
Taxes 6 22 24 26 27 28 30
Tax Ad -22 0 0 0 0 0 0
NOPLAT -9 52 57 61 64 66 70
Depreciation 26 24 23 22 21 21 20
Net Working Capital -120 -5 -9 39 11 15 15
Capex (tangible assets) -5 10 8 2 17 11 16
0 1 2 3 4 5 5
FCFF 142 71 80 41 57 61 50 665
Adjusted FCFF
71 78 42 57 60 49 658
DCF
71 71 34 43 41 31 410
NPV
702
Appendix – Portuguese Market risks
In the 6th of May 2011, Portugal signed a support plan with Troika, for a joint financing package of €78
billion. The main goals of the support plan established an increase of the Portuguese competitiveness,
growth and jobs. Furthermore, the plan wants to strengthen the fiscal policy, reduce the budget deficit to 3%
of the GDP, by 2013, and stabilize public debt. Additionally, measures to strength regulation, supervision
and to increase bank’s capital positions are also foreseen in the agreement. Portugal is also expected to
suffer an increase on privatizations, state divestures and to fight corruption. We believe that those measures
will decrease short-term GDP growth and increase exports.
Portugal is expected to face a recession, at least, in the next 2 years and stagnate for the following years.
Based on these expectations, Portugal might suffer a breakdown in confidence levels and, consequently,
face a reduction in investment, deposits and an increase of bad credit.
Regarding the banking system, Portuguese banks are facing the highest historical risks. The banking system
is suffering difficulties to finance outside the ECB and high bond yields are a challenge. In April 2011, the
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ECB pressured Portuguese banks to stop buying national government debt in order to reduce the banks’
exposure.
Appendix – Portuguese Sovereign Public Debt
Despite the Memorandum of Understanding between Portugal and Troika, the Portuguese government
bonds yields remain high. Also, the potential peripheral spreads caused by countries, such as Greece,
created, and are still creating, a pressure on Portuguese bonds. The sovereign risk is increasing CDS
market.
The impact of the Portuguese Sovereign Public Debt on Mota-Engil’s debt:
Mota-Engil cost of debt is being affected by the Portuguese credit crisis. The majority of the company’s debt
comes from bank loans, which are exposed to the Portuguese sovereign debt. The difficulties that
Portuguese banks are facing to obtain credit, the increase of the banks spreads, as well as, the increasing
constraints that they are being created to lend money of infrastructural projects will probably increase the
company’s debt. Nowadays, banks are taking fewer risks and lending money to riskless projects. In line with
this, Mota-Engil is expected to have liquidity problems in the next years, due to the Portuguese economic
crisis. Our estimated cost of debt is based on the country’s sovereign debt, adjusted to 12M Euribor.
Appendix – Strategic Plan 2009-2013
In 2009, Mota-Engil presented to its shareholders and investors the strategy of the company for the next 5
years. Briefly, the company wants to adopt a policy of a continuous and sustainable growth based on
diversification to other business sub-divisions with high margins, mainly through the environment and
services division. In Portugal, the company is planning to be market leader in all the divisions in which it is
present. Mota-Engil intends to base its growth strategy in Europe, America and Africa.
CDS Price
Germany 70,67
Portugal 892,88
Spain 361,47
Ireland 844,06
Hungary 400,82 Czech Republic 126,60
Slovakia 135,78
Poland 239,90
Romania 363,56 0%
2%
4%
6%
8%
10%
12%
14%
1y 2y 3y 4y 5y 6y 10y 15y
Portuguese Yield Curve
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PAGE 32/33
Furthermore, the company plans to decentralize power to local business units, in order to create synergies
between business divisions. Regarding the engineering and construction division, the company is planning
to improve its margins and to increase the efficiency of the operational costs.
Appendix – Martifer
€M EV EV/EBITDA Per
Share Discount
Rate Nominal Growth Rate
2016-2021 Terminal Value Growth
Rate
Company divsions
Martifer 702 11,11 6,99 9,91% 5% 3,23%
Associates companies
Other Assets 13 0,21 0,13
Total EV 716 11 7 9,91% 4,96% 3,23%
Net Debt E2011 482
5
Minorities E2011 32
0
Equity E2011 201
2
Number of Shares Outstanding 101
Target Price 2,00
Last price 1,43
Upside Potential 40%
Price as 02-June-2011
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PAGE 33/33
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.
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