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Research de Kepler Cheuvreux:
Topic of the day
(+) EDPR (Buy, TP EUR8.30) - Encouraging statements from new US Secretary of the Treasury (Espresso)
Company news
(+) Grifols (Buy, Iberian Top Pick, TP EUR24) - Read-across from Biotest US deal
(+) OHL (Hold, TP EUR4.75) - Places last stake in Abertis, Villar Mir owns another 1.74%
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Topic of the day
EDPR (Buy, TP EUR8.30) - Encouraging statements from new US Secretary of the Treasury (Espresso)
Jose Porta, +34 91 436 5113 / jporta@keplercheuvreux.com
The new pick for US Secretary of the Treasury has made some reassuring comments, endorsing the PTC phase-out until 2020. The stock is down by 20% since pre-US election, mostly on the back uncertainty surrounding US fiscal incentives. Therefore, we expect a positive reaction to the secretary’s statements.
Treasury secretary nominee’s comments are encouraging
During his nomination hearing on 19 January, the nominee for the US Secretary of the Treasury, Steven Mnuchin, provided the first official comment from the new administration regarding the current PTC phaseout scheme. During the senate hearings session, Sen. Chuck Grassley asked Mnuchin for confirmation that he agreed to support the current phase-out (ending in 2020) of the PTC (production tax credit) for some alternative energies including wind. In his response, Mnuchin indicated that “(…) we do need to have phase-out rules when we change things, and I support the phaseout of that as you suggested (…)”.
EDPR’s asset base and capex plans are US heavy
EDPR derives 43% of its EBITDA from the US. The rest is roughly evenly split between Spain, Portugal and Rest of Europe (plus a small bit in Brazil). The extension of the PTC scheme (in December 2015) until 2020 was good news, given that they are critical to achieve target IRRs. EDPR has significant capex plans in the US going forward. For 2016-20, it plans to install 1.8GW in the American market, and it has already secured long-term PPAs (power purchase agreements) for c. 60% of this target or 1.1GW (0.4GW 2016, 0.4GW 2017 and 0.3GW 2018). The company has indicated that this target may be enhanced by 1.3GW (meaning that the total installed over 2016-20 would reach 3.1GW), with a full 100% of the fiscal benefits thanks to the safe harbour option for all the target adds (including the enhanced target). The company is actively looking for new PPAs to confirm such enhanced targets.
There should be a relief rally following these statements
The stock has been a fantastic predictor of US political change, beating most of global media and pollsters (sadly this ability is not rewarded by shareholders). It started to crash on 24 October 2016, and has lost 20% of its market cap since then, of which around half happened before the election. All in all, the stock has suffered significantly from uncertainty on the future of US fiscal benefits. We believe EDPR is in for a relief rally following the reassuring comments from the new treasury secretary.
Company news
Grifols (Buy, Iberian Top Pick, TP EUR24) - Read-across from Biotest US deal
Natalia Bobo, +34 91 436 5165 / nbobo@keplercheuvreux.com
Biotest announced yesterday the sale of its US Therapy business to ADMA Biologics, including BPC’s fractionation facility, commercial products, contract manufacturing agreements, headquarters and real estate. Also, the distribution agreement with Kedrion for Bivigam (Biotest’s IVIG) in the US has been terminated. The reason is linked to manufacturing issues at Boca Raton facilities that could not be solved. Thus, Biotest was not able to supply Kedrion with the product. For the moment, Bivigam will not be sold anymore (ADMA will take a decision about the product later on, depending on those manufacturing issues). Biotest believes the Boca Raton facilities are more suitable for small volumes (thus, specialty products), as the problems arose as a result of the production ramp-up. In addition, there will be no intermediate product deliveries from the US to Germany to manufacture albumin and factor VIII. According to Biotest, this will be offset by sales of plasma to third parties (Shire could be one of them).
We expect little impact on the market, as Bivigam’s market share was only c. 1%. The impact of the lower albumin and factor VIII availability will not be relevant either, considering Biotest’s size.
Still, the whole situation confirms our belief that size is key in the sector. Biotest has been struggling with its US operations for a long time.
In general, we believe that Grifols will benefit in coming months from peers’ capacity restrictions, as Shire and Kedrion have announced the closure of fractionation capacity accounting for c. 5% of the market. Long-term, we believe that Shire’s plan to open plasma centers is timid, thus CSL and Grifols could be better positioned to handle future demand.
OHL (Hold, TP EUR4.75) - Places last stake in Abertis, Villar Mir owns another 1.74%
Joaquín Ferrer, +34 91 436 5111 / jferrer@keplercheuvreux.com
Yesterday, after the market closed, OHL placed its last 2.5% in Abertis without any discount. With this placing, OHL has gotten rid of all of its exposure to Abertis. Inmobiliaria Espacio, the vehicle through which Juan Miguel Villar Mir owns his holding Grupo Villar Mir, still owns 1.74% of Abertis.
The shares sold by OHL were the collateral for a EUR273 loan, which had a linear maturity in 52 instalments between August 2017 and October 2018. Also, the company had a collar derivative instrument with the stake that limited the upside and downside on Abertis’s share price. However, OHL decided not to wait for the loan to mature and placed its remaining Abertis shares. Of the 2.5% stake, 1.84% was sold on the market and another 0.66% went to the banks signing the derivative to cover the position they had open as a result of this instrument. This time, OHL paid more normal net fees (c. 1.4%) to the banks involved in the transaction, as the cancellation of the derivative instrument generated a profit. OHL obtained EUR332m in net proceeds. After repaying the above-mentioned loan, OHL will pay down corporate debt with the remaining funds.
OHL said the sale of this stake had nothing to do with any need for cash associated with its operations and framed the transaction within the strategy announced by its CEO that focuses on simplifying the company’s structure.
Regarding the stake still owned by Inmobiliaria Espacio, we would expect it to be sold as well. We think it has a similar derivative and loan structure, so the stake coming to the market –not acquired by the banks to cover their open positions- should be less than the full 1.74%.
Back to OHL, with this placing and after repaying the EUR273m loan with the Abertis stake, it will have another EUR60m to reduce corporate debt. The management had anticipated EUR300m in proceeds from divestments to be cashed in in Q1 2017. After the EUR158m coming from Mayakoba and these EUR60m, we are awaiting confirmation of the sale of a stake in Canalejas (OHL could sell c. 20% of its current 35%, for c. EUR80m if we assume a valuation of EUR400m for 100%) and top it up with the sale of other small businesses in the Construction perimeter to reach its EUR300m target. Today, El Confidencial reports OHL has decided to postpone the sale of its LatAm motorways due to the low prices offered by potential bidders.
OHL faces outflows of EUR300m in 2017-18 from these “legacy” construction projects with uncertain inflows that would likely come only later. This is in conjunction with equity commitments in its LatAm concessions of EUR190m in 2017E (EUR140m in 2018E) and debt maturities of EUR387m through end-2017. As of September 2016, it had EUR479m in cash and cash equivalents and EUR416m in undrawn credit facilities. Management expects recourse activities to be cash positive in 2017, ex- legacy projects.
OHL has shown some progress in meeting this EUR300m divestment target. However, from a valuation perspective, if we mark-to-market the OHL Mexico share price and the current EUR/MXN, we get to a fair value for OHL of EUR2.9 per share. We would remain cautious on OHL shares.
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