Atlantia SpA – Expects a gradual recovery in the second half

Atlantia SpA (LON: 0I2R) is operating as an Industrial Transportation Company with operations in 24 countries.

Rationale for Valuation – Speculative Buy at EUR 14.32

• In relation to the recent developments, Standard & Poor’s (the rating agency) affirmed the BB- rating of Atlantia and Autostrade per l’Italia.
• In H2 FY20, the Company had a gradual recovery in the operations.
• In the last six months, the Company has delivered a positive return of ~49.05%,
• From the technical standpoint, 90-day RSI stood at ~49.63, which is supporting the upside movement.

Key Risks

• The Company operates in multiple geographies, and the profits can be impacted negatively due to foreign exchange rate fluctuations or COVID-19 mayhem.
• It is exposed to the risk of a fundamental change to the regulatory framework, which can have an adverse impact on the business and economic model.
• Further, performance is also exposed to technological changes and geopolitical tensions.

Recent News

On 3 September 2020, the Company stated that it has agreed to establish a new Company, which is to be named as Autostrade Concessioni e Costruzioni SpA, to acquire the assets resulting from the spinoff of Autostrade per l’Italia, comprising Atlantia’s stake of up to 88%.

Financial Highlights (for the six months ended 30 June 2020, as on 4 August 2020)

(Source: Company Website)

• The Company delivered a decent performance in H1 FY20, with a decrease in operating revenue of 34% and gross operating profit (EBITDA) of 63%. The H1 FY20 results were impacted by Covid-19 pandemic.
• In H1 FY20, Motorway traffic and Passenger traffic was down in all regions.
• Led by the impact of acquisition and consolidation of Red de Carreteras de Occidente (RCO), the net debt increased by €2,444 million to €39,166 million (30 June 2020) as compared with 31 December 2019.
• The Capital expenditure stood at €633 million for the period, reflecting a decrease of 22%.

One Year Share Price Chart

Daily Chart as of 14 September 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Conclusion

Both the top-line and the bottom-line performance decline in H1 FY20, while the profitability remained in the negative zone. The Company operations are impacted by the outbreak of a covid-19 pandemic. It expects a gradual recovery in the operations in the second half of the financial year 2020. Atlantia also believes that the results for H2 FY20 will include the contribution of the Mexican group, RCO, consolidated through Abertis Infraestructuras at the end of the first half of 2020. Overall, the Company seems to be well-positioned for the long-term and believes that it will emerge stronger from this prevailing disruption.

Based on the decent growth prospects, we have given a “Speculative Buy” stance on Atlantia SpA at the current market price of EUR 14.32 (as on 14 September 2020, before the market close at 9:32 AM GMT+1).

Hunting Plc – Operating with a strong balance sheet

Hunting Plc (LON: HTG) is an FTSE All-Share listed Energy Company, which provides services to upstream oil and gas entities.

Rationale for Valuation – Speculative Buy at GBX 151.80

• HTG retained strong cash and bank position at 30 June 2020, with solid customer relationships and sturdy product portfolio.
• The Company recorded a lower debt-equity ratio of 0.05x (H1 FY20) against the industry median, which reflects that HTG is less leveraged as compared to the industry.
• As per valuation metrics, EV/Sales and EV/EBITDA multiples are currently lower as compared to the corresponding multiple of the Oil & Gas related equipment and services industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, 14-day RSI stood at ~43.87, which is supporting the upside movement.

Key Risks

• The ongoing impact of the Covid-19 pandemic continues to create a challenging and volatile trading environment.
• The decline in oil prices can impact the cash generation and profitability of the Company.
• The Company operates in multiple geographies, and profits can be impacted negatively due to foreign exchange rate fluctuations.

Financial Highlights (for the six months ended 30 June 2020, as on 27 August 2020)

(Source: Company Website)

• Hunting has generated positive EBITDA in H1 FY20, albeit largely in Q1 FY20. It also retained a strong balance sheet and healthy cash position at 30 June 2020, despite the extremely volatile trading conditions.
• Currently, the Company has a strong product portfolio comprising hydraulic couplings, valves, stress joints, and production flow access modules.
• The Board has declared a second interim dividend per share of 2.0 cents.
• Overall results were down due to coronavirus pandemic and the consequent decline in the global WTI oil price.

One Year Share Price Chart

Daily Chart as of 14 September 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

Despite the challenging market conditions, the Company has responded well and reported a positive underlying EBITDA. Further, Hunting should be able to respond rapidly to any improvements in activity and any market opportunities, with a strong balance sheet position. The dividend per share of 2.0 cents, shows confidence in the chosen markets and business lines. During H1 FY20, RTI (RTI Energy Systems) won a number of major offshore orders, while Enpro has made good order book progress. The outlook for FY20 remains uncertain. However, enquiry levels have improved with the increasing average oil price. Overall, Hunting stays in a good position to deliver shareholder value with a strong product portfolio.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Hunting at the current market price of GBX 151.80 (as on 14 September 2020, before the market close at 1:28 PM GMT+1), with lower double-digit upside potential based on 7.50x Price/NTM Cash Flow (approx.) on FY20E cash flow per share (approx.).

*All forecasted figures and Peer Information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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