Sacyr showcases its water business
- From: Vol 13, Issue 6 (June 2012)
- Category: General
- Region: Europe
- Country: Spain
- Related Companies: Sacyr Vallehermoso., Valoriza Agua and YPF
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Valoriza Agua is the fastest growing division within Sacyr. With an enterprise value of €470 million, can the group afford not to sell its most prized asset?
Spanish construction giant Sacyr Vallehermoso last month showcased its water and environment division Valoriza to investors, valuing the business at between €1.4 and €1.6 billion and emphasising its rapid revenue growth and prospects for profitability.
Sacyr wants to deflect market attention away from a spate of negative events, ranging from the the nationalisation of Argentinian oil company YPF – in which SyV holds a 10% stake – to infighting among top management, to the catastrophic state of the Spanish economy, all of which have combined to result in a 60% drop in the value of the group’s shares over the last six months.
Valoriza is strategic to the group’s goal of “prospering on the basis of organic growth”, according to the company. The division’s sales have grown tenfold since its inception in 2004, and its contribution to group revenue has ballooned from 2.6% to reach 25% last year.
“It is now the fastest growing division in the group and, within Valoriza, water is the fastest growing business alongside industrial,” according to Pablo Abril-Martorell, managing director of Valoriza Agua. From around 26% today, water is projected to account for around one third of Valoriza Agua’s revenues by 2014.
With expected top-line growth of more than 50% from 2012 to 2013 thanks to income from major desalination projects in Israel, Australia and Chile, the group has put an estimated enterprise value of €470 million on Valoriza Agua, including net debt of around €170 million, Abril-Martorell told GWI.
The €1.4 to €1.6 billion enterprise value ascribed to Valoriza as a whole includes €495 million of debt, and equates to an EBITDA multiple of between 8.75 and 9.88, which the group says is “in line” with its peers in the sector. According to Gonzalo Pajares, an analyst with Inverseguros, however, these valuation multiples are “very optimistic”. He told GWI that an enterprise value of between €1.07 and €1.14 billion would be more realistic.
Independent analyst Mike Pinkney’s view of Valoriza’s valuation is less categorical. “From the stock market perspective, there’s going to be a natural degree of scepticism. Nevertheless, if you look at transactions that have taken place in recent years, we have seen multiples consistent with that valuation.”
With regard to the valuation of Valoriza Agua, he told GWI that “eight times EBITDA for 2013 due to major contracts in Chile and Australia doesn’t seem unreasonable.”
Aside from the credibility of the valuations, the question arises as to whether Sacyr’s intention in showcasing Valoriza is to attract investors back into the group’s equity, or to attract buyers for Valoriza’s businesses – or a combination of the two.
Pajares would not commit to a definite viewpoint regarding Sacyr’s intentions, but he is absolutely certain that the group will be forced to sell assets to meet its debt repayments, which total €8.8 billion. “They themselves have admitted this. It is a company whose cash-generating capacity will be insufficient to meet its debt repayments in 2013/2014,” he stated categorically.
In Pinkney’s view, Sacyr’s principal interest is “to send a message that the market has been too focussed on other things. What can’t be discounted is the possibility that they will look at these businesses when they are mature and maybe sell off some of the individual units.”