Key metrics below expectations, all hopes pinned on Q4 14
Abengoa’s Q3 key metrics fell considerably short of our expectations: E&C new orders came in at
EUR653m (0.6x book-to-bill), 23% below our estimate, while E&C revenues and EBITDA
contracted by 5% and 21% y/y respectively, below our estimates by a considerable 15% and 32%.
Given the decline in E&C revenues in Q3, we take Abengoa’s reported corporate FCF of
EUR164m with a degree of caution. Following yesterday’s 6% cut to the FY14 group revenue
target, the only two silver linings were in our view the order pipeline of EUR27bn Abengoa has
identified for the next four months and management’s expectation that E&C margins will be
stronger in Q4 14.
Key positives and negatives
Positives: (1) Abengoa’s identified order pipeline of EUR27bn, some of which management
expects to convert into firm orders over the next four months; (2) Management upheld yesterday its
target for FY14 corporate FCF (ex-disposals) to be >0, despite the negative FCF of EUR712m in
9M14; (3) The Biofuels’ EBITDA margin of 13.6% in Q3 14 (c.2x our estimate), though Abengoa
does not expect to sustain this level of profitability in the medium term.
Negatives: (1) 6% cut to FY14 group revenue target, to EUR7.4bn-7.5bn; (2) The order intake of
EUR653m (23% below our estimate), which was the lowest since Q1 12; (3) The sudden
contraction in E&C’s EBITDA margin to 13.5% in Q3 14 (vs. 17.7% in H1 14 and our 17.0%
forecast for Q3 14); (4) Abengoa reduced its disclosure in Q3 14, with no consolidated CF
statement or calendar of engineering works on own concessions made available.
Maintain Underperform
We appreciate that Abengoa’s potential as both an engineering and concession owner group has
increased through Abengoa Yield. Nonetheless, to turn more positive on the shares, we will need
to see more evidence of sustainable FCF generation at the corporate level.