Febrero 2020. What´s new: We are updating our coverage of EISA, introducing our YE20 target price of
CL$ 278, maintaining our HOLD recommendation.
Investment thesis: (1) Industry highly linked to the investment cycle in Chile. Construction
GDP has an elasticity of 1.8x with respect to aggregate GDP considering positive observations,
being one of the highest at the sector level. By 2020, we expect a fall of approx. 6% in
investment, so the prospects are not attractive to the industry in the current context. (2)
Attractive valuations compared to comparable ones. According to our estimates, EISA
would be trading at 7.9x EV/EBITDA 2020 (vs. 9x average last 5 years of comparable). (3)
EISA reached its historical backlog in 2019. The above allows it to face in a good way the
expected slowdown for investment in Chile in 2020. It also reaffirmed the aggressive
growth plan in the real estate segment, where it is intended to reach a stock of UF 2.5 million
over a period of 5 years.
Outlook 2020: We expect increases of approx. 17% and 20% in revenues and EBITDA in
2020, mainly due to an important recovery in Industrial Assemblies based on both MAPA
(CL$ 154,000 million) and Quebrada Blanca 2 (CL$ 68,900 million) projects awarded in
2019, where the company reached its highest historical backlog . Likewise, we expect Buildings
to continue with slightly positive margins. This would be partially compensated by the
real estate development segment, affected by a shorter deed cycle. Profit would reach $
13.7 billion (+ 10% YoY) mainly offset by higher financial expenses based on the increase in
debt observed in 2019.
Risks: As main downside risks, we highlight (1) a greater than expected deceleration in local
investment prospects. (2) Project execution risk. The construction sector is exposed to
many contracts that often differ strongly in their conditions. In some cases, design problems
and/or client planning, or changes in building permits can mean significant risks when
making these projects profitable. As the main upside risk, we highlight (3) the award of
additional projects or the potential reversal of litigation from previous periods.
Echeverría Izquierdo S.A. (EISA) is a Chilean company linked to the Engineering and Construction and Real Estate Development businesses. EISA was founded in 1978 and maintains operations in Chile (96% of sales in 2017), Peru, Argentina, Bolivia, Brazil and Colombia, being the 15th largest company linked to construction in Latin America. EISA divides its operations into three main business segments: (1) Construction and Industrial Services (55% of U12M sales); (2) Building and Civil Works (36% of U12M sales); and (3) Real Estate Development (9% of U12M sales). The company is controlled by the Echeverría and Izquierdo families, who together with other partners maintain a total of 76% ownership.
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