OHL – Q3 20 results show continued progress despite Covid
All,
OHL Q3 20 results came mostly in line with our projections. EUR772m revenues were a bit higher than our EUR762m forecast, while EBITDA (pre-IFRS 16 basis) came at around EUR37m, a bit lower than our EUR40m projections. However, based on the positive statements from management, we now expect full-year 2020 EBITDA to be above last year’s levels.
The important working capital account saw only a limited EUR27m outflow, vs our projection of EUR113m outflow, and EUR86m outflow in Q3 19. This suggests OHL has successfully contained a deterioration of supplier and client terms despite the ongoing debt restructuring talks. As working capital has traditionally been one of the main drags on problematic construction companies, this development also supports our view that OHL’s management is gradually but successfully addressing the legacy issues of the business.
This leaves Q3 20 ending cash balance at EUR312m, which should allow OHL a bit more room to reach an unrushed capital structure workout.
The company’s strong performance in the North American division more than offset the covid-related weakness in Spain and Latin America. The company has reiterated its previous guidance of cash outflows from legacy projects, and estimated a EUR30m full-year EBITDA impact in 2020 from covid.
On the debt restructuring front, management also admitted that is considering taking over Pacadar as a payment of the GVM+Pacadar loans. And the company also took some small impairment charges on the Canalejas and Mayacoba stakes, which is in mostly line with our lower estimates of non-core asset values.
Finally, management stated that the Amodios are already involved in the day-to-day management of OHL, and that they would accept ending up with a minority position, similar to the current ones, in any final debt restructuring agreement. This is an important point as it opens the door for a larger than forecasted potential equity component for the existing bondholders on a restructuring package.
We currently no position on the bonds. This mainly reflects the difficulty in entering a position at this late stage of the restructuring talks. However, we will continue to monitor OHL with the view of being able to react quickly once any post-restructured instruments come to the market. We also note that the OHL situation offers potential new money opportunities, or even real estate investment opportunities (Canalejas, War Office, etc…), for investors willing to be more on the active side.
Feel free to reach out if you would like to exchange ideas on the name.
Juliano
__________________
E: jtorii@sarria.co.uk
M: +44 794 73 56 163 (preferred)
T: +44 203 744 7055