Saudi Aramco, Saudi Arabia’s state oil company, has awarded Técnicas Reunidas the contract for the turnkey project Clean Fuels within the Ras Tanura refinery on the east coast of Saudi Arabia.
The contract will be for 48 months and includes engineering, supply of materials, construction and presence at the launch of the project, which is divided into two parts.
With this new contract, Técnicas Reunidas will consolidates its presence in the Saudi market. It also shows how it is continuing to enjoy the confidence of one of its most important clients, Saudi Aramco, with whom it has been working non-stop since 2003 and has been involved in 10 refining, petrochemical and gas projects.
Although the statement filed by the company with Spain’s stock market regulator does not provide any financial information on the project, we believe it is between 1.500 and 1.800 billion dollars (1.415-1.7 billion euros) vs our estimates for 1.5 billion dollars. If this amount is confirmed, it would mean a good start to the year for Técnicas Reunidas as it would mean it would have already covered 35% of our estimated amount of contracts for the whole of 2017 (4.5 billion euros).
Our view is that the news, which had been advanced at end-2016, should already be well priced-in, so we don’t expect any impact on the stock price. We hope that 2017 is a better year for contracts thn 2016, bearing in mind the company’s large pipeline.
The Middle East market looks strong, where clients are repeating orders, and there are also opportunities in Asia, North America and Latin America. We reiterate our Hold stance, with a target price of 38 euros/share.
Elsewhere, the Norwegian Pension Fund (NPF) has increased its stake in Técnicas Reunidas to 3.017% from 2.53%. So it is now on a level with Fidelity (3%) and FMR (3.06 ). The controlling shareholder is the Lladó family (37.19%).
For Bankinter, NPF can provide a qualified view on the oil industry (the Norwegians understand this business…) and related engineering activities, which is the company’s main business.
We estimate that Técnicas Reunidas is trading at a PER’17 of 14,8x and PER’18 of 13,9x vs 18,2x and 15,0x respectively for the Ibex, with a dividend yield of approx. 3.6% (not to be sneezed at in the current zero interest rate environment). It can count on the recovery in the investor cycle for oil installations being in its favour, while it also has a positive net cash position. The company meets 4 basic requirements which we need to see in order to assign a Buy recommendation: a good time for its business, product/service differentiation, a good management team and conservative management of its balance sheet. We are in the process of revising our target price.
