Abengoa, S.A.

ABGB : NASDAQ : US$20.35
Target: US$25.00

Abengoa is a leading provider of technology and
innovation to sustainability markets worldwide. With a
platform focused on E&C, concessions and industrial
products, the company has built a strong and growing
presence in solar and biofuels production, T&D lines,
water desalination, recycling and IT-related end markets

Sustainability — Energy & Power Technologies
Investment recommendation
We expect Abengoa to be a strong performer in ’14 as the story becomes
better understood by U.S. investors (following ~$600M NASDAQ IPO in
October 2013) and asset-based concession/infrastructure models
continue to grow increasingly attractive (e.g., inflation hedge, recurring
revenues, dividend streams) for investors worldwide.
Investment highlights
We expect 2014 will bring continued financial improvements (e.g. FCF),
additional asset rotations (in perhaps a better pricing environment now
that Spain has reaffirmed the 7.5% return for CSP), solid E+C business
and a productive year for biofuels. The exploration of a more formal
yieldco structure also remains a possibility, in our view.
E&C backlog (€7B+ exiting Q3) supports strong visibility, while ramping
concession assets and expected additional asset rotations look to drive
positive FCF in 2014. For technology, we see Hugoton’s cellulosic plant
tracking to plan, with start-up expected in 2014.
Abengoa will release Q4/13 results after the close (Madrid) on February
20, with call at 12:00pm ET. As usual, performance is more properly
assessed against a full year given the project-based model. We assume
Q4 revenues/EBITDA/EPS in the range of ~€2.03B/€349M/€0.07.
Our $25 target (up from $18) on NASDAQ listed shares is based on a
multiple of 8.2x from (7.5x) ’14 EV/EBITDA. The clarity of Spanish solar
returns alleviates risk and eliminates some discounting, in our view.
This target takes into account the 5:1 ADS-to-Madrid B share conversion
ratio and a EUR/USD exchange rate of 1.35.


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