Acciona: Fundamentals And Technicals Align For A Rebound


BMI View : Acciona's share price has seen the worst performance of all the major construction players in Spain over 2012. However, a rally in its share price is ending its underperformer status, and we believe the company has strong fundamentals to sustain further price gains. Strategic diversification across emerging markets and high growth sectors ha ve allowed the company to secure a wide array of contracts, resulting in its order book expanding at a significant rate, indicating that 2013 will be a stronger year for the company.

Acciona 's 9M12 results show that there is promise for the company in 2013. Whilst the full - year 2012 results are likely to be hit by a variety of underlying factors, an attractive expansion strategy which has resulted in growing order backlog should bode well for 2013 and could see the company ' s share price continue to make gains . Acc i ona's share price has fallen significantly from around EUR200 to EUR53 since the beginning of 2008 ; however , it is now in a short - term growth trend, which , if it continues , could see it push through key resistance at EUR54 and make further gains.

Acciona Making A Comeback?
Acciona, Ferrovial, ACS and IBEX, Rebased As Of 01/01/2012

Despite posting revenue growth of 7.7% over 9M12, Acciona saw net profit fall 63.7% over the same period. The result is reflective primarily of the extraordinary one-off gains posted in the same period in 2011, as a result of asset disposals. Whilst total EBT fell 56.7%, ordinary EBT actually grew 49.4%, reflecting strong growth in the Energy and Water & Environment units. However, the 9M12 results did raise some problematic areas. One of the biggest areas of concern is energy reform in Spain, which includes taxes on revenues from a variety of generation sources. This is expected to result in a pre-tax hit of between EUR80 and EUR100mn per year. As a result, the company has committed to cutting capital expenditure (capex), the impact of which is already notable on the 9M12 results, with ordinary capex down 33%. The company will also continue to dispose assets and implement cost-saving programmes. Net debt, whilst expanding, having increased by 10% between December 31 2011 and September 31 2012 to EUR7.7bn, is stable, with no major refinancing events due over the near term.

Acciona 9M12 Results, EURmn
9M11 9M12
*Net Debt As of December 31 2011, Source: Acciona
Revenues 4796 5165
EBITDA 934 1040
EBT 392 170
Attributable Net Profit 314 114
Total Net Capex 447 564
Net Debt 6991 7689*

New Year, New Outlook

2013 looks likely to be a much more promising year for Acciona. The company has significantly increased its presence in growth markets, especially emerging markets. Whilst the sheer geographic exposure of the company could become a cause for concern if it does not consolidate its presence in these markets, general access to new growth markets, and therefore strong contract opportunities, is a promising sign. This is reflected in 9M12 order bookings, which increased by 4.3% over the period; furthermore, the growing internationalisation of the backlog is notable, growing its share from 40% in 9M11 to 51% in 9M12.

Reducing exposure to Spain remains a crucial strategic goal. The country's construction sector remains in recession and the government under financial strain. Acciona's backlog domestically is heavily weighted toward government contracts, meaning that ongoing austerity measures will further reduce contract opportunities domestically.

Regionally speaking, the strongest growth is expected to come from Latin America and the Middle East and Africa regions. Acciona is well placed to capitalise on opportunities in both markets.

Latin America Shows Its Strengths
International Construction Order Backlog, %

Segment Performance

The best performing segment in Revenue and EBITDA terms was Energy and we expect further strength from new contracts awarded over 2012. Renewables has become the company's major area of focus in the Energy market, and has successfully expanded into new markets. However, the renewables sector is experiencing uncertainty globally, meaning those markets with growth potential are experiencing growing interest from companies like Acciona and, consequently, increased competition, which could weigh on margins. The company was awarded new contracts in both Canada and the US in 2012; however, both are markets facing regulatory uncertainty, and therefore growth potential could be limited. On the other hand, strong growth is expected in South Africa, Brazil and India, where Acciona was also awarded contracts over the year. Brazil and South Africa are new wind markets added to the company's roster in 2012 - both are high growth, but also very competitive markets. In Brazil, the company won its first wind power contract, for the supply, installation and maintenance of 40 3MW wind turbines in April 2012; in South Africa, Acciona has entered the wind power market for the first time, with two contracts totalling 209MW, in partnership with domestic contractor Aveng.

Utilities Outperformance To Continue
Revenues, By Segment, EURmn

Water & Environment also holds strong potential to perform well over the coming years, building on 12% revenue growth in the 9M12 period. The company is expanding its existing exposure to high growth markets with new contract awards and is entering new markets to capitalise on future opportunities. Mexico's utility sector remains a highlight of the country's infrastructure sector, and Acciona is one of the best placed companies to capitalise on this, illustrated through the award of the EUR47mn contract for construction, operation and maintenance of a second water treatment plant in Mexico City in October 2012. The company is also increasing its exposure to Mexico's power sector, through the award of the EUR80mn Baja California II power plant in November 2012. In addition to consolidating its presence in Mexico's utility sector, Acciona has entered one of the highest growth markets globally for the sector - Saudi Arabia. With plans to invest tens of billions in water production, Saudi Arabia is one of the most promising markets in the water sector and also has the potential to act as a launch pad into other Gulf Cooperation Council markets, all of which are heavily investing in water infrastructure. Acciona was awarded its first contract in the Kingdom in October 2012. In partnership with domestic contractor Saudi Binladin Group, Acciona Agua was awarded for design, construction and commissioning of the Al Jubail desalination plant (known as SWRO-4).

Probably the most significant contract awarded in the water segment is for the management of Aigues Ter Llobregat - the company which manages upstream water supply in Barcelona and nine nearby districts. The 50-year concession contract includes management, operation and improvement of the network and was awarded to a consortium led by Acciona, with a 39% stake. The high-profile contract is yet to be added to the company's order backlog.

Strategically Sound

Acciona is not only positioning itself well to capitalise on growth opportunities and decrease exposure to weaker markets, but is doing so prudently. Acciona's local partners are some of the most established in those markets, allowing it to leverage its technical expertise, financial might and capacity against the local knowledge of its partners. This tactic should enable Acciona to be successful in its new markets and help to offset some of the ongoing struggles domestically.

This article is tagged to:
Sector: Infrastructure
Geography: Spain