PORR Buy (unchanged) Target: Euro 36.00 (old: Euro 34:00) 25 April 16 Price (Euro) 28.00 52 weeks range 30.50 / 20.41 Key Data Country Austria Industry Technology & Construction ISIN AT0000609607 WKN 850185 Reuters ABGV.VI Bloomberg POS AV Internet www.porr-group.com Reporting Standard IFRS Fiscal Year 31/12 IPO 2001 Number of shares (million) 28.5 Free Float 46.3% Market Cap (million) 798.9 Free Float Market Cap (million) 369.9 CAGR pre-tax profit ('15 - '18e) 20.9% Multiples 2015 2016e 2017e 2018e MarketCap/ Revenues 0.25 0.23 0.22 0.20 PE-Ratio 13.8 10.1 8.7 7.6 Dividend Yield 5.4% 6.1% 6.4% 6.8% Price-to-Book ratio 2.0 1.9 1.7 1.5 Key Data per Share (Euro) 2015 2016e 2017e 2018e Earnings per Share (EPS) 2.02 2.76 3.21 3.67 Dividends per Share (DPS) 1.50 1.70 1.80 1.90 Book Value per share 14.16 14.77 16.55 18.72 Financial Data (Euro '000) 2015 2016e 2017e 2018e Revenues 3,139,687 3,440,155 3,708,000 3,954,000 EBITDA 165,942 198,948 219,388 243,449 Operating Profit (EBIT) 87,770 117,493 137,148 159,339 Pre-tax profit (EBT) 81,113 109,544 126,270 143,172 Pre-tax margin 2.3% 2.7% 2.9% 3.1% Net profit (after minorities) 57,711 79,578 93,389 106,240 Adjusted Shareholders' Equity 369,108 399,696 440,953 492,165 RoE after tax (adjusted) 15.6% 19.9% 21.2% 21.6% Equity Ratio 17.9% 17.9% 19.2% 20.6% Financial Calendar AGM 24 May 2016 1Q 2016 report 31 May 2016 2Q 2016 report 30 August 2016 SRC Forum Financials & Real Estate 8 September 2016 Main Shareholders Syndicate (Strauss-group / IGO-Ortner-group) 53.7% PORR Management 6.6% Renaissance Group 5.8% Treasury shares 2.1% Analysts E-Mail Internet Dipl.-Kfm. Stefan Scharff, CREA Thilo Gorlt, CIIA, Exec. MBA (HSG) scharff@src research.de gorlt@src research.de www.src research.de www.aktienmarkt international.de www.aktienmarkt international.at Good financials for 2015 and further margin improvements ahead still Buy and TP up to 36 On 21 April, real estate construction and technology group PORR released its 2015 report and invited for a conference call to give more insights into numbers and strategy. All in all, numbers have been in-line with our optimistic forecast for 2015, the net cash position was even better. Net cash was at high Euro 187m (2014: Euro 65m) and clearly above our forecast of Euro 80m to Euro 120m. Even if we deduct the Euro 50m repayment of the UBM mezz capital, a Euro 137m net cash position is a clear sign of strength and an improved working capital and cost management. The cash driven EBITDA profit jumped by 6% from Euro 156.4m to Euro 165.9m, slightly above our forecast (Euro 165.3m). The net profit after minorities steeply increased from Euro 44m to almost Euro 58m (+30%). Our projection was at about Euro 64m, as we calculated a lower taxation. Looking at financial ratios, picture was satisfying. The equity ratio remained stable at 18%. Without the lucrative acquisition of Bilfinger Poland (now PORR Polska Infrastructure) and the strong rise in production output to a new record level of Euro 3.52bn and the high cash amount at year-end, the equity ratio would have been much nearer to 20% or even above which is the firm s targeted range (20% - 25%). The pre-tax margin (EBT to output) also developed well and climbed from 1.9% to 2.3% making a good step to mid-term target of at least 3.0%. PORR continues the way to improve its organizational structure to work more efficiently and to concentrate on the margin rich projects. PORR s order intake was very high, +29% to Euro 4.04bn, and the financial result was also favorable as interest expenses were lower than we expected. Thus, the commission is now to bring all these lucrative businesses and projects, in particular in the economically strong and stable core markets and in the big landmark infrastructure projects, down to the own group s bottom line by an improved cost and project management. It is a good picture when the CEO is saying in the annual report that PORR was a good orchestra already in former years albeit played in too many concert halls. PORR is on a good way to lift its efficiency and already achieved some remarkable success. We applaud the new and lean organizational structure with 4 new BU s, the digitalization process eliminating superfluous interfaces and the investments in innovations and HR. We believe that the 2016 EBT will steeply grow from Euro 81m to about Euro 110m translating into a higher pre-tax margin of 2.7%. For 2017 we expect the pre-tax margin be to very close to the targeted 3%. PORR is a Buy with the steady improvements. We lift our target price from Euro 34 to Euro 36.
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Some value creation unlocked with the 2015 numbers PORR delivered the last two years on its restructuring and reorganization story and there is still some room for significant improvements of the margins PORR significantly lifts the dividend and offers a scrip dividend for a part of its dividend payment a very innovative form and the first time in Austria. As we mentioned with our opening coverage 2 years ago in January 2014, the company offered and still offers a tremendous upside potential, as the management worked on several fields to improve the internal processes, to promote the digitalization of the construction sites and to have a better eye on operating margins and profitability of each single project (and thus the future profits) as well as on restructuring the debt side and bringing a total focus on construction and leading infrastructure technonolgy business after the spin-off of the real estate development arm in the new UBM. These efforts bore fruit with the presentation of the 2015 annual report as the company delivered again record levels at order backlog and order intake, a very high net cash position (much higher than in 2014 and clearly above our forecast), a jump in the pre-tax margin (pre-tax profit in relation to the production output), and a jump in bottom line by 30% to Euro 57.7m net profit after minorities (2014: Euro 44.4m from continued operations). The shareholders will profit from a higher dividend payment which was lifted from Euro 1.00 in 2014 (including the real estate business) to Euro 1.50, only based on the success in the construction business. From the Euro 1.50 the amount of Euro 1.00 is paid as cash dividend and the remaining Euro 0.50 is paid as a so-called scrip dividend. That means that the investor may choose if he prefers to get also this part as a cash payment or he will be paid with PORR shares which are taken from the firm s treasury shares. Thus, the firm may use their own shares to pay their shareholders and on the oher way around the shareholders have the free choice if they prefer to lift their stake in PORR or if they prefer to receive more cash. After the AGM there is a two weeks subscription period in June to give the shareholders room for a decision. The subscripton ratio will be determined after the end of the subscription period. The reinvest price will be set after the subscription period and quite near to the current market level. With regards to the P & L, we like the picture, as PORR translated a Plus of 1.4% in production output and +4.3% in revenues into a jump of 6% in EBITDA and more than 7% in EBIT. A much lower financial burden helped for a 23% jump in pre-tax profit. The periodic result stated below is with minorities and includes the contribution for profit participation rights (Genussrechtskapital). The pure net profit after minorities was at Euro 57.7m, a jump of 30% compared to 2014. An improved P & L picture with a jump in pre-tax result by 23% and a pre-tax margin which climbed from 1.9% to 2.3%. The better liquidity situation helped for a cheaper financing as net financial expenses more than halved from Euro 15.6m to Euro 6.7m. Source: Company data 3 3 SRC Equity Research
More value creation to come within the next years PORR has changed its organizational structure to be better prepared for future challenges and to unlock more cost synergies. On the one hand, PORR has permanent businesss in its core markets, as this means not only infrastructure or technology-based projects but also very normal highrise buildings and residential properties. Besides that, PORR has to serve in large-scale infrastructure projects like bridges, tunnels and slab tracks, not only in its core markets (German speaking Europe plus Poland and Czech) but also and with a quickly rising significance in so-called target markets like the Scandinavian countries, UK and Qatar. There will be a special focus to serve the needs of both market types permanent markets and project business. The following tables show the importance of project business, in particular infrastructure and technology driven business for the next 3 or 4 years. Project business in particular in infrastructure plays a key role for the future performance of the total group Poland develops very strong (after purchase of Bilfinger Poland). Switzerland also triples its order backlog. Germany and Austria remain on a high level. Source: Company data 4 4 SRC Equity Research
The new organization helps to be quicker on the market and to bring down costs by a lean structure. Austria and Switzerland as well as Czech are bundled in Business Unit 1. Germany is separated in Business Unit 2. BU 3 are the targeted markets, mainly with the project driven infrastructure large scale projects. And Business Unit 4 is the growing future field of Environmental Business. Source: Company data PORR is on the right way leading to another good year ahead target price up from 34 to 36 Euros The PORR management adresses the right measures, by making the total organization lean and cost-efficient having an eye for working capital to minimize financial expenses driving the internal digitalization process linking internal knowledge from different fields of operations keeping innovation high and exploiting the technology-leadership to improve the overall margin of the group exploring target countries with the right teams and the right projects as done in Norway setting a demanding pre-tax target of at least 3.0% of output keeping the eyes open for inorganic growth by some more deals as this was successfully done with Bilfinger Infrastructure The strategy is right and 2016 will be another good year ahead. The high order backlog and the tremendous hike in order intake make us optimistic that PORR already has the right projects under contract to expand its profits and margins. We clearly confirm our Buy recommendation and lift our target price from Euro 34.00 to Euro 36.00. 5 5 SRC Equity Research
P & L 31/12 IFRS (Euro '000) 2011 2012 2013 2014 2015 2016e 2017e 2018e 2019e Production output 2,826,047 2,905,634 3,162,079 3,474,885 3,523,752 3,987,400 4,286,455 4,586,507 4,838,765 9.2% Revenues 2,212,490 2,314,828 2,630,025 3,009,118 3,139,687 3,440,155 3,708,000 3,954,000 4,186,000 8.0% Own work capitalized in non-current assets 4,152 4,210 4,453 890 539 1,010 990 1,030 1,215 Share of profit/loss of associates 17,916 20,201 34,604 66,156 46,233 48,577 52,370 70,165 75,980 Other operating income 67,158 70,312 112,700 119,475 101,818 126,390 126,500 127,920 133,600 Cost of materials and other related production services -1,470,861-1,455,484-1,748,711-2,026,001-2,060,827-2,270,556-2,486,650-2,688,476-2,820,257 9.3% Staff expense -580,804-625,309-669,814-752,960-807,638-862,528-905,300-938,500-1,045,706 5.1% Other operating expenses -239,225-224,921-216,643-260,254-253,870-284,100-276,522-282,690-285,060 Operating result (EBITDA) 10,826 103,837 146,614 156,424 165,942 198,948 219,388 243,449 245,772 13.6% Depreciation, amortisation and impairment expense -51,291-50,028-65,736-74,716-78,172-81,455-82,240-84,110-85,053 2.5% Operating result (EBIT) -40,465 53,809 80,878 81,708 87,770 117,493 137,148 159,339 160,719 22.0% Income from financial investments and other current financial assets 1,738 5,976 12,354 24,762 18,968 19,506 21,473 18,578 19,452 Finance costs -44,342-37,777-33,641-40,370-25,625-27,455-32,351-34,745-26,211 Earnings before tax (EBT) -83,069 22,008 59,591 66,100 81,113 109,544 126,270 143,172 153,960 20.9% EBT margin (in relation to production output) neg. 0.8% 1.9% 1.9% 2.3% 2.7% 2.9% 3.1% 3.2% Income tax expense 12,880-4,015-7,059-17,542-20,069-27,386-30,305-34,361-36,181 Profit/loss for the period -70,189 17,993 52,532 48,558 61,044 82,158 95,965 108,811 117,779 21.2% of which attributable to non-controlling interest 2,749 742-225 -68 133-87 -91-96 -108 Profit/loss for the period attributable to shareholders of the parent and holders of profit-participation rights -72,938 17,251 52,757 48,626 60,911 82,245 96,056 108,907 117,887 21.4% of which attributable to holders of profitparticipation rights 5,600 5,600 6,433 4,200 3,200 2,667 2,667 2,667 2,667 CAGR '15 - '18e Net profit after minorities -78,538 11,651 46,324 44,426 57,711 79,578 93,389 106,240 115,220 22.6% Diluted/basic earnings per share (EPS) -28.99 1.08 3.88 3.22 2.02 2.76 3.21 3.67 3.98 Dividends per share (DPS) 0.31 1.00 1.50 1.50 1.70 1.80 1.90 2.10 Number of shares ('000) 10,836 10,802 11,947 13,803 28,533 28,818 28,962 28,962 28,962 Adjusted Shareholders' Equity without minorities 224,820 226,552 298,733 340,140 369,108 399,696 440,953 492,165 546,566 10.1% Shareholders' Equity (including minorities and hybrid) 303,243 322,553 347,662 385,171 412,118 432,818 486,470 549,325 606,979 RoE after Tax -31.2% 5.2% 17.6% 13.9% 16.3% 20.7% 22.2% 22.8% 22.2% Total assets (Euro million) 2,137.1 2,060.7 2,296.5 2,146.0 2,304.0 2,419.2 2,540.2 2,667.2 2,800.5 Equity ratio 14.2% 15.7% 15.1% 17.9% 17.9% 17.9% 19.2% 20.6% 21.7% Key ratios & figures 2011 2012 2013 2014 2015 2016e 2017e 2018e 2019e Growth rates in % Revenues 4.6% 13.6% 14.4% 4.3% 9.6% 7.8% 6.6% 5.9% EBITDA 859.1% 41.2% 6.7% 6.1% 19.9% 10.3% 11.0% 1.0% EBIT -233.0% 50.3% 1.0% 7.4% 33.9% 16.7% 16.2% 0.9% EBT -126.5% 170.8% 10.9% 22.7% 35.1% 15.3% 13.4% 7.5% Net profit after minorities -125.6% 192.0% -7.6% 25.7% 34.6% 16.8% 13.4% 8.2% Margins in % (based on production output) EBITDA margin 0.4% 3.6% 4.6% 4.5% 4.7% 5.0% 5.1% 5.3% 5.1% EBIT margin -1.4% 1.9% 2.6% 2.4% 2.5% 2.9% 3.2% 3.5% 3.3% EBT margin -2.9% 0.8% 1.9% 1.9% 2.3% 2.7% 2.9% 3.1% 3.2% Net profit margin -2.5% 0.6% 1.7% 1.4% 1.7% 2.1% 2.2% 2.4% 2.4% Expense ratios in % Personnel costs to sales 26.3% 27.0% 25.5% 25.0% 25.7% 25.1% 24.4% 23.7% 25.0% Cost of material to sales 66.5% 62.9% 66.5% 67.3% 65.6% 66.0% 67.1% 68.0% 67.4% Depreciation to sales 2.3% 2.2% 2.5% 2.5% 2.5% 2.4% 2.2% 2.1% 2.0% Tax rate -15.5% -18.2% -11.8% -26.5% -24.7% -25.0% -24.0% -24.0% -23.5% 6 6 SRC Equity Research
SRC Research - The Specialist for Financial and Real Estate Stocks - SRC - Scharff Research und Consulting GmbH Klingerstr. 23 D-60313 Frankfurt Germany Fon: +49 (0)69/ 400 313-80 Mail: scharff@src-research.de Internet: www.src-research.de Rating Chronicle Date Rating Former Price* Former Target* PORR 18 February 2016 Buy 25.10 34.00 PORR 01 December 2015 Buy 25.76 34.00 PORR 26 October 2015 Buy 24.95 34.00 PORR 31 August 2015 Buy 23.86 32.50 PORR 30 June 2015 Buy 28.80 32.50 PORR 02 June 2015 Buy 59.88 65.00 PORR 05 May 2015 Buy 53.80 65.00 PORR 15 April 2015 Buy 49.15 65.00 PORR 18 February 2015 Buy 44.80 65.00 PORR 27 November 2014 Buy 46.05 65.00 PORR 01 September 2014 Buy 49.70 63.00 PORR 15 July 2014 Buy 51.00 60.00 PORR 12 May 2014 Buy 49.72 60.00 PORR 16 April 2014 Buy 48.55 60.00 PORR 25 March 2014 Buy 44.36 60.00 PORR 28 January 2014 Buy 27.30 42.00 * Share prices and target prices until 2 June 2015 are before the share split in a ratio of 1:2 as of 19 June 2015 Please note: The PORR share price mentioned in this report is from 22 April 2016. PORR AG mandated SRC Research for covering the PORR share. Disclaimer 2016: This equity research report is published by: SRC-Scharff Research und Consulting GmbH, Klingerstr. 23, D-60313 Frankfurt, Germany (short name: SRC Research). All rights reserved. Although we feel sure that all information in this SRC report originates from carefully selected sources with high credibility, we cannot give any guarantee for accuracy, trueness and completeness. All opinions quoted in this report give the current judgement of the author which is not necessarily the same opinion as SRC- Scharff Research und Consulting GmbH or another staff member. All the opinions and assessment made in this report may be changed without prior notice. Within the scope of German regulative framework the author and SRC-Scharff Research und Consulting GmbH do not assume any liability for this document or its content being used. This report is solely for information purposes and does not constitute a request or an invitation or a recommendation to buy or sell any stock that is mentioned here. Private clients should obtain personal advice at their bank or investment house and should keep in mind that prices and dividends of equities can rise and fall and that nobody can give a guarantee of the future development of equities. The author of this report and the SRC-Scharff Research und Consulting GmbH commit themselves on a unsolicited basis to having no long or short-positions in equities or derivatives related to equities mentioned in this report. Reproduction, distribution or publishing this report and its content as a whole or in parts is only allowed with approval of SRC management written form. With acceptance of this document you agree with all regulations mentioned here and all general terms and conditions you will find at anytime at our website www.src-research.de. 7 7 SRC Equity Research