Testa, la joya de Sacyr

N+1 Equities re­co­mienda com­prar y po­si­cio­narse con de­ci­sión

Testa, la so­ciedad pa­tri­mo­nial de Sacyr, es "el ac­tiuvo más ay­trac­tivo y más in­fa­va­lo­rado de Sacyr y posee una de las car­teras de pro­piedad co­mer­cial más ex­tensas de España, con 3.330 mi­llones de euros en ac­tivos a fecha de 2013", según in­forma la firma N+1 Equities . Su car­tera, para ser exac­tos, con­siste en 1) ofi­cinas de alto stan­ding en Madrid y Barcelona (55% del valor to­tal) que se con­centra en al­qui­leres a largo plazo de un solo in­qui­lino. 2) ho­teles ope­rados por ca­denas de primer orden (13%). 3) Centros co­mer­cia­les, vi­viendas re­si­den­ciales y cen­tros lo­gís­ticos (22% del va­lor) y 4) otros ac­tivos fun­da­men­tal­mente suelo, par­kings y re­si­den­cias sa­ni­ta­rias y de la ter­cera edad. En con­se­cuen­cia, la firma re­co­mienda "fuerte com­pra" del va­lor, quees pre­ci­sa­mente uno de los que más se ha re­va­lo­ri­zado en lo que va de año.

A continuación, el informe en inglés y el PDF.

"Testa is the most attractive and most undervalued asset within Sacyr as it holds one of the largest commercial property portfolios in Spain with EUR3.3bn GAV (2013). In more detail, the portfolio consists of: 1) prime offices in Madrid & Barcelona (55% of GAV) focused on long term leases with a single tenant; 2) 10 hotels operated by leading chains (13% of GAV); 3) shopping centres, residential housing & logistic centres (22% of GAV); and 4) other assets mainly made up of land (8% of GAV) as well as parking lots and care homes (2% of GAV).

We see GAV for Testa rising to EUR3.7bn by 2016 mainly as a result of a higher valuation for offices (5.6% average gross yield), commercial premises (6.5% gross yield) and hotels (4% above reported GAV). This is equivalent to a EUR2.0bn NAV (excluding the stake in Tesfran) by 2016 which we discount back to 2014 to arrive to our EUR1.7bn NAV (13% above reported figures). Based on this valuation, Testa already represents 50% of our equity value for Sacyr.

Testa holds EUR917m intragroup loans granted to Sacyr's parent company. To cancel this intragroup lending (and subject to a potential transaction), Testa has proposed to its AGM: 1) a EUR624m capital reduction in the subsidiary; and 2) a EUR518m extra dividend. If this is the case, Sacyr will reduce corporate debt with the remaining EUR220m proceeds.

An IPO of Testa should be next

We think Sacyr will crystallize value in Testa during 2H14 and we think that floating a larger stake (up to 30%) through a capital increase is the best option. In our view, a transaction of this kind could raise EUR0.5bn proceeds (part of which could go to Sacyr) and would be a very positive move, allowing it to: 1) crystallize value in Testa now that the valuation for Spanish property assets is improving; 2) recapitalize the group with the proceeds raised; and 3) provide Testa with a strategy of its own, benefiting from greater financial flexibility to develop its asset base. The shares of Testa are pledged as collateral for the Repsol loan (EUR2.4bn) but we do not expect Sacyr to face opposition from the banks (170-180% value to loan vs. 150% covenant).

Repsol: a partial sale could be on the cards

We expect three things to happen in 2014 regarding the 9.2% stake that Sacyr holds: a) the sale of a 3% stake in order to increase financial flexibility and reduce the risk attached to the stake; b) the refinancing of the EUR2.4bn loan attached to the stake, which coupled with a) should allow for a partial lifting of the Testa shares pledge; c) We expect Repsol to pay an extraordinary DPS of up to EUR1 p.s., which would imply EUR122m proceeds for Sacyr. However, our view is still that the investment adds no value to Sacyr and that it should be sold in full.

Is debt finally under control?

We continue to think that corporate debt (EUR759m in 2013) and debt at the Repsol SPV need to fall further. We should finally see a reduction (around 1/3) in corporate debt during 2014 thanks to the recent capital increase (EUR166m) and disposal of non-core assets. As for Repsol, we think part of the stake has to be sold in order to improve the loan to value and free guarantees. Looking into 2015, corporate debt could be close to zero after: 1) the reorganization of the intragroup debt between Sacyr and Testa (EUR220m proceeds for Sacyr parent company); 2) the sale of Itínere (EUR248m debt tied to the 15.5% stake); and 3) the sale of other non-core assets (i.e. water business in Portugal?). By then, the stake in Repsol should also be sold in full.

Raising TP to EUR6.46

We are raising our TP for Sacyr by 17% to EUR6.46 p.s., mainly due to our new valuation for Testa (EUR1.7bn equity value vs. our previous EUR1.0bn) reflecting the value recovery of Spanish property assets in a context of improving market fundamentals (rents and occupancy levels picking up) and the low interest rate environment (which we expect will result in lower market yields). Our valuation is fully diluted for the recent capital moves (EUR250m convertible and EUR166m capital increase, implying 522m share count) and also reflects the fine-tuning in our estimates and the latest reported BV for concessions.

Strong Buy reiterated

Sacyr remains one of the most attractive investments in the Spanish market and a very good way of playing the recovery of the Spanish property cycle (Testa represents 50% of our valuation for Sacyr). In addition, the shares look very good value (34% upside to our TP), whilst delivery on the derisking, deleverage & asset disposals process should continue over the coming months, which should be good news for the share price."

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