THAT’S ON AT HOCHTIEF:
Domestic business only plays a minor role for Hochtief. Around 94 percent of the Group’s sales of almost 24 billion euros are generated outside of Europe, above all in Australia and the USA. And it actually went well in day-to-day business until the outbreak of the Corona crisis.
The fact that the bottom line was a minus in 2019 was due to the Australian subsidiary Cimic. It actually accounts for the lion’s share of profits, but withdrew from business in the Middle East due to significantly deteriorating market conditions and therefore had to write off a lot of money. In order to improve Cimic’s balance sheet and its own, Hochtief sold half of the Australian mining equipment supplier Thiess to the Hegdefonds Elliott at the end of 2020. Last year, Hochtief again posted a profit of around 427 million euros.
The corona pandemic has been causing problems for Hochtief since last year. Projects are delayed and the business of the Spanish motorway operator Abertis is going much worse because of the lockdowns. Toll motorways are used significantly less. In 2018, Hochtief took over the Spanish motorway operator together with the Spanish parent company ACS and the toll road operator Atlantia, which belongs to the Italian entrepreneurial family Benetton.
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On the other hand, there could be problems for Hochtief on the home market. Just recently, the President of the Main Association of the German Construction Industry, Peter Huebner, warned of supply bottlenecks for plastic, wood and steel, which could slow the construction boom. The companies would have to spend 40 percent more on the material than usual, in some cases there are only daily prices, said Hübner.
Meanwhile, Hochtief boss Marcelino Fernández Verdes is counting on the governments of different states investing more heavily in infrastructure in order to cope with the crisis. For example, under the new President Joe Biden, the United States was planning to invest 2.3 trillion US dollars over eight years in the infrastructure, said Fernández Verdes at the annual general meeting in early May. According to him, almost 300 billion Australian dollars will be invested in Australia over the next four years.
In addition, he expects an investment boost in the implementation of the climate target in the EU from the 750 billion euros pandemic reconstruction fund. Hochtief had identified target properties worth more than 620 billion euros in North America, the Asia-Pacific region and Europe for 2021, it said when the figures for the first quarter were presented a few days later.
In the USA, US President Biden recently reached an agreement with a small group of Democratic and Republican senators on a package for investments in roads, bridges, transport and energy networks. The scope of this package is far from what Biden had originally targeted. In addition, it is unclear whether there will be enough votes in the US Congress to pass the package. The US president was nevertheless confident.
For the current year, the construction group, which is majority owned by the Spanish infrastructure group ACS, is aiming for an adjusted profit of 410 to 460 million euros. This is an increase of 11 to 25 percent if the result of 2020 is adjusted for the 50 percent sale of Thiess shares.
WHAT ANALYSTS SAY:
According to analyst Victor Acitores from the French bank Societe Generale, the figures for the first quarter have been mixed. While the adjusted profit was above expectations and Hochtief had a solid order intake, the cash generated without Cimic was lower due to lower sales and the pandemic influence. Acitores advises buying the share with a price target of 105.5 euros.
Analyst Frank Schwope from NordLB also spoke of mixed results. However, they are also distorted by the pandemic and the sale of Thiess shares. With a view to current market developments and the operational course of business, as well as weighing up the opportunities and risks, the investment judgment remains “hold”.
Analyst Antonio Rodriguez Vicens of the investment bank Oddo BHF is more skeptical about the Hochtief share. The prospects in the important US market are good, but after two years of significant losses by the Australian subsidiary Cimic, the balance sheet has been affected. This drains the returns to the shareholders and so the return is no longer sufficient to continue to assess the shares positively.
In addition, the strategic value of the stake in Hochtief for Atlantia is limited. And the ACS management made it clear that it does not want to increase its stake in Hochtief. Therefore, the uncertainty on this front remains high, at least in the short term. Therefore, his recommendation is now only to keep the papers of the construction company. At the same time, he significantly lowered the price target for the share to 67 euros.
Analyst Luis Prieto from the investment bank Kepler Cheuvreux is also more skeptical about the Hochtief share. Although he recommends investors to hold on to the paper, he recently lowered the price target to 78 euros. The management of ACS recognized the urgency to address the complexity of the group, he wrote in a recent study. However, management also made it clear that it would not use any of the proceeds from the upcoming sale of Industrial Services to Vinci to increase its stake in Hochtief.
The analysts recorded by the Bloomberg news agency since the presentation of the figures for the first quarter in mid-May have been cautiously positive. While two out of four analysts recommend buying the shares, two experts recommend holding the shares. No analyst is in favor of selling the shares. The average target price of 84 euros is well above the current level.
WHAT DOES THE SHARE DO:
The corona pandemic is clearly reflected in the price of Hochtief shares. Immediately before the crisis escalated at the end of February 2020, the shares were still quoted at 105 euros. In the course of the crash, the papers then sagged to 41.58 euros within a few weeks. This was the lowest level since December 2012.
The subsequent recovery led the share price back up to 90 euros by the beginning of June. But then things went downhill again for them with intermittent recovery tendencies until the end of October. The papers then recovered. The interest of the French construction and service group Vinci in the industrial division of the Spanish Hochtief major shareholder ACS also contributed to this. In addition, the Hochtief subsidiary Cimic announced a short time later that it would sell half of its mining equipment supplier Thiess to the Hegdefonds Elliott. Overall, however, the Hochtief share lost around 30 percent in 2020 and was one of the big losers in the MDax.
The share will continue to lose value in 2021. Since their annual high of EUR 88.55, which was reached in January, the paper has continued to decline since then. Investors were particularly disappointed that ACS does not want to increase its current 50 percent stake in Hochtief with the proceeds from the sale of the industrial division.
The shares were most recently traded at EUR 64.76, which means a loss of almost a quarter since the beginning of the year. Hochtief is currently valued at EUR 4.6 billion on the stock exchange. In the MDax, only a few stocks performed even worse in the current year. The former highs are a long way off: In mid-2017, Hochtief was worth more than 170 euros at times.
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