Sectors > Top Reports > OHL Memo 091219

OHL Memo 091219

Working Capital Outflows Erode OHL Net Cash YTD Q3 2019. How Does It Play Out From Here?
PUBLISHED: 09 December 2019
SUBMARKET: OHL, Top Reports, Top Reports,


Why Read?

  • Understand potential positive catalysts – Amodio family equity investment; sale of OHL Desarrollos (Canalejas, Old War Office); Q4 19E working capital inflow; repayment of loans to shareholders; sale of claims against customers (e.g. Cemanosa); Mayakoba sale cash proceeds; bond buybacks
  • Understand potential key risks – cash burn on legacy contracts; customer claims; cancellation risk on performance guarantee lines
  • Understand how OHL’s turnaround post its Q3 2018 contract review is progressing at 9m 2019 – legacy contract cash flows; cost overheads reduction; new orders / backlog; EBITDA; working capital
  • Understand the working capital cycle and how it impacts FCF generation
  • Understand OHL’s sensitivity to regional EBITDA margins, working capital, new orders and cost of capital in terms of equity cushion and valuation and debt coverage

What’s New?

  • Assessment of value within the OHL Desarrollos business
  • Assessment of OHL’s available liquidity (with and without current financial assets in escrow and cash in temporary subsidiaries) and projection thereof
  • DCF valuation of OHL using its high cost of equity
  • Valuation sensitivity analysis – impact of regional EBITDA margins, working capital, new orders and cost of capital

Questions Answered

  • Will OHL buy back its 2022 and 2023 senior unsecured bonds?
  • Is OHL reducing its underlying cash burn?
  • What is our base case and sensitised valuation of OHL?
  • Can OHL generate sufficient FCF to meet bond maturities in 2020, 2022 and 2023?
  • How much equity upside is there and how does this break out between the current net cash position, real estate development and improvement in the core construction business?

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