Download pdf - EGL PL PSI20 Index©lias_2011.pdf · The present report aims to value Mota-Engil, SGPS, S.A. The following paragraphs intend to stress the threats and opportunities that the company

THIS DOCUMENT IS NOT AN INVESTMENT RECOMMENDATION AND SHALL BE USED

EXCLUSIVELY FOR ACADEMIC PURPOSES (SEE DISCLOSURES AND DISCLAIMERS AT END OF DOCUMENT)

See more information at WWW.NOVASBE.PT Page 1/33

MMMAAASSSTTTEEERRRSSS IIINNN FFFIIINNNAAANNNCCCEEE

EEEQQQUUUIIITTTYYY RRREEESSSEEEAAARRRCCCHHH

After analysing Mota-Engil and its market, the price target

FY 11 is €2.47 per share therefore, the recommendation is to buy.

The presence of the IMF in Portugal has been raising

concerns on future public projects. The Portuguese government

postponed infrastructural projects, such as TGV and the new

Lisbon airport. Consequently, Mota-Engil’s revenues are expected

to decrease 1.7%. Moreover, the national Sovereign Debt is

causing financing difficulties in this division.

Internationalization, both in Africa and Latin America, may

be the key for the Engineering & Construction division. Despite

the Portuguese crisis, Mota-Engil may benefit from foreign

economic growth which may have a positive impact on its

revenues. We expect revenues to grow 25% and 2%, respectively.

In order to diversity from its core business, Mota-Engil will

continue to invest in Environment & Services. In line with this, the

company is planning to expand its market share in Africa,

especially in Angola, due to the country’s strategic plan regarding

sanitation services. Nevertheless, logistics will be the main sub-

division. Privatizations might increase the company’s activity in

Portugal. In 2011, we expect an EBITDA growth higher than 1.3 %.

Mota-Engil changed the transports concession’s division

accounting method from full consolidation to equity consolidation.

The recent increase in the Portuguese Sovereign Debt

might raise the company’s financing costs.

MOTA-ENGIL COMPANY REPORT

CONSTRUCTION 06 JUNE 2011

ANALYST: PEDRO CONTUMÉLIAS [email protected]

The future behind the curtain

Internationalization will be the key

Recommendation: BUY

Vs Previous Recommendation BUY

Price Target FY11: 2.47 €

Vs Previous Price Target 4.00€

Price (as of 02-Jun-11) 1.68 €

Reuters: EGL.LS, Bloomberg: EGL PL

52-week range (€) 2.73-1.64

Market Cap (€m) 353.82

Outstanding Shares (m) 204.636

Source: Bloomberg.

Source: Bloomberg.

(Values in € millions) 2010 2011E 2012F

Revenues 2004 2210 2351

EBITDA 237 261 278

EBITDA mg 11.83 11.81 11.84

Net Profit 36 31 33

EPS 0.19 0.14 0.16

P/E 8.84 12 10.5

Net Debt/EBITDA 5.13 4.25 4.5

Debt/Equity 2.53 2.2 2.3

EBITDA Margin 11.83% 11.83% 11.83%

Source: Company Report Data. Analyst Estimates

EGL PL PSI20 Index

Company Description: Mota-Engil SGPS, SA is a Portuguese industrial conglomerate. The company operates in three business divisions: engineering and construction; environment and services and transport concessions. The company operates in Europe, Africa and America.

speralta

Rectangle




PAGE 2/33

EXECUTIVE SUMMARY ........................................................................................................................................... 3

VALUATION ............................................................................................................................................................... 3

COST OF CAPITAL: .......................................................................................................................................................... 4 DISCOUNT RATES: ........................................................................................................................................................... 4

MACROECONOMIC SITUATION ............................................................................................................................ 7

COMPANY OVERVIEW ............................................................................................................................................ 8

COMPANY DESCRIPTION .................................................................................................................................................. 8 SHAREHOLDER STRUCTURE ............................................................................................................................................ 9

CONSTRUCTION SECTOR ..................................................................................................................................... 9

MARKET ENVIRONMENT ................................................................................................................................................... 9 PORTUGAL ..................................................................................................................................................................... 10 EASTERN EUROPE ......................................................................................................................................................... 11 AMERICA ........................................................................................................................................................................ 12 AFRICA ........................................................................................................................................................................... 12 VALUATION .................................................................................................................................................................... 14

ENVIRONMENT & SERVICES ............................................................................................................................... 14

WASTE MANAGEMENT ................................................................................................................................................... 16 WATER DISTRIBUTION ................................................................................................................................................... 17 LOGISTICS ...................................................................................................................................................................... 18 MULTI-SERVICES ........................................................................................................................................................... 19 VALUATION E&S DIVISION ............................................................................................................................................. 19

ASCENDI .................................................................................................................................................................. 20

MARTIFER ............................................................................................................................................................... 23

VALUATION MARTIFER ................................................................................................................................................... 25

FINANCIAL STATEMENTS .................................................................................................................................... 26

APPENDIX – CASH FLOW STATEMENTS ......................................................................................................... 28

E&C ........................................................................................................................................................................... 28

E&S ........................................................................................................................................................................... 29

ASCENDI .................................................................................................................................................................. 29

MARTIFER ............................................................................................................................................................... 30

APPENDIX – PORTUGUESE MARKET RISKS ................................................................................................... 30

APPENDIX – PORTUGUESE SOVEREIGN PUBLIC DEBT............................................................................... 31

APPENDIX – STRATEGIC PLAN 2009-2013 ....................................................................................................... 31

APPENDIX – MARTIFER ........................................................................................................................................ 32




PAGE 3/33

Executive summary

The present report aims to value Mota-Engil, SGPS, S.A. The following

paragraphs intend to stress the threats and opportunities that the company will

face in E&C, E&S divisions and on its associated companies, Ascendi and

Martifer SGPS. The following years will be important to the success of the Mota-

Engil. We believe that the potential growth in Africa and America may boost this

company’s growth.

It is possible to conclude that its internationalization plan has a positive impact in

the E&C division. However, the current Portuguese economic situation will have

a negative impact on this division. We believe that the company’s strategy plan to

diversify from its core business is, and will be, important to increase its margins.

Regarding the E&S division, we consider that the international exposure and the

efforts done to maintain its leading position in the market, as well as, the possible

privatizations resultant from the memorandum signed between Portugal and

Troika will be key factors in this division.

We believe that Ascendi is less exposed to economic risk due to the agreement

signed with the national government stating that revenues were based on

services availability. In fact, the company faces a competitive advantage by

avoiding a revenues variation due to traffic level’s changes.

Finally, we consider that the market is undervaluing Martifer. The company has a

high potential growth, mainly in the renewable division, which generates 48% of

the company’s revenues. This potential can the explained by the European Union

renewable energy technology roadmap and by the expected decrease of the

polysilicon spot price.

Our price target FY11 is 2.47 per share.

Valuation

The valuation method chosen was the Sum-of-the-Parts (SOTP) through the

Discounted Cash Flow (DCF) Method. The discounted rate applied was the

weighted average cost of capital (WACC). To reach the DCF, we forecasted cash

flows until 2016, followed by an annuity to forecast the company value until 2021.

From that period on, Mota-Engil is expected to reach a plateau phase, with

constant WACC, margins and capital turnover. Furthermore, the analysis

Mota-Engil was valued using

the Sum-of-the–parts method

The Cash Flows were

estimated until 2016




PAGE 4/33

assumes that all the existing contracts with suppliers and clients of all business

divisions would not be revised until its end. We valued each division and

associated company separately. To measure the continue value of the company,

the approach adopted was a perpetuity.

Cost of Capital:

For each division, comparables were selected to identify the re-levered industry

betas, to find unlevered betas and to obtain the systematic risk of the company.

The selection criterion was based on companies within same industry for each

division/associate company. We concluded that the industry risk is similar within

Western companies due to the fact that they present in the same markets, belong

to the European Union and offer the same kind services. Moreover, the

regressions were computed based on daily data for the past 7 years and used

STXE 600 index1.

Regarding E&C, heavy construction companies were chosen to assess the un-

diversifiable risk. In what concerns the E&S division, comparables were selected

based on Mota-Engil’s core activities: waste, water, logistics and multi-services.

The same reasoning was applied to find comparables for Ascendi.

The method used to obtain the company’s specific beta was based on levered

betas from the set of comparables selected. Firstly, betas were unlevered using

Mota-Engil’s forecasted capital structure. Secondly, an arithmetic average was

computed to capture the market systematic risk. Finally, we obtained the beta re-

levered according to Mota-Engil´s Debt/Equity ratio. Concerning the E&C

division, the re-levered beta was 1.26. In addition, the re-levered beta for E&S

and Ascendi was 1.23 and 1.2, respectively. Due to its specificity, we obtained

Martifer’s beta by regressing the company’s returns with PSI20 Index. The beta

obtained was 0.9. A possible conclusion states that the company’s and its

associate company’s returns might be strictly influenced by the market.

Discount Rates:

We calculated the discount rates for Mota-Engil based on division and region. To

assess the market premium, we captured the specific risk of each country by the

difference between the specific country CDS and the German 7 Y CDS.

Additionally, we applied the PSI20 index stocks/bonds volatility ratio in order to

capture the changes between stocks and bonds volatilities’.

1 Data from 26-04-2004 up to 26-04-2011.

Table 1 - Comparable's Betas

Unlevered Beta

Beta Levered

E&C Soares da

Costa 0,72 0,78

EIFFAGE 0,74 0,92

Ferrovial 0,79 1,14

ACS 0,77 0,88

Vinci 0,83 1,29

Trevi 0,81 0,84

Impregilo 0,85 1,07

E&S Gnd 0,76 0,47

Sev 0,78 0,63

Bma 0,79 0,65

Schp 0,80 0,52

ferrovial 0,79 1,14

ACS 0,77 0,88

Ascendi Brisa 0,76 0,56

ACS 0,77 0,88

Eiffage 0,74 0,92

AT 0,81 0,76

Discount rate was based on

Mota-Engil division and region

Comparables were chosen based on business area and

industry risk

Comparables were chosen based on business division

and industry risk

Source: Bloomberg; Analyst Estimates structures




PAGE 5/33

Considering that most of the company’s projects abroad are paid in dollars, our

free cash flows were adjusted to foreign currency and predicted using the

Euro/Dollar forward curve. The same methodology was applied to Ascendi and

Martifer.2

Given that most authors defend that it is irrelevant to divide debt by division in

economic analysis, we decided to estimate total debt. To obtain the market value

of debt, interest rates were forecasted based on the Portuguese yield curve and

Euribor forecasts3. This assumption reflects our belief that Mota-Engil’s interest

rate cannot be below the Portuguese sovereign debt, both due to the national

economic reality and the absence of the company’s official debt rating. We

obtained a €1194m market debt by summing the present values of loan

payments4. In what concerns Martifer, the market value of debt obtained was

€471m.

To properly assess the market value of equity, we subtracted the market value of

debt from enterprise value (EV) of the firm.

As previously explained, each division and associated companies were

valued by the DCF method. Regarding the Engineering and Construction

division, the WACC obtained was 9%, whereas for Environment and

Services, the WACC was 8.88%. In what concerns associated

companies, the WACC obtained for Ascendi was 8.81%, whereas for Martifer

was 9.91%. The WACC of the engineering and construction division registers the

highest value within Mota-Engil’s divisions, mainly due to the Portuguese crisis

that the construction market has been suffering.

Revenues were valued by sub-division and region. The importance of each sub-

divisions/regions was based on the weight of EBITDA or on revenues by

divisions/regions. From 2021 on, perpetuity growth rates5 were chosen in order to

obtain realistic growth rates that reflect the industry reality.

In order to value the E&C division, we calculated revenues, from 2011 to 2016,

necessary to obtain the company’s free cash flows. The period considered was

based on forecasts of the international monetary fund (IMF). Revenues of each

region were calculated in order to obtain the consolidated revenues of the

2 Since no relevant information was provided by Martifer’s investments relation department, the referred information was assumed.

3 Data from 02-June-11

4 This debt structure was assumed for E&C and E&S division as well as for Ascendi.

5 We assumed na inflation rate of 1.9%

Cost of debt

Cost of Equity

E&C 10,00% 13,65%

E&S 10,00% 13,63%

Ascendi 10,00% 13,47%

Martifer 10,68% 12,30%

Table 2 – Cost of Debt and Equity

Table 3 – Financial Information

E&C E&S Ascendi Martifer

Rf 3,56% 3,56% 3,56% 3,56%

Beta 1,26 1,23 1,20 0,90

WACC 9,00% 8,88% 8,81% 9,91%

E&C was assumed to follow gross production value and nominal GDP growth

Source: Bloomberg; Analyst Estimates Revenues increase on investment structures

The world economic forum estimates an increase on investment structures


Source: Bloomberg Revenues increase on investment structures






PAGE 6/33

division. The E&C division was assumed to follow the gross production value by

sub-segment (residential, non-residential and civil engineering) for Portugal and

Central European countries, until 2013. From that period on until 2016, we

assumed that the gross production value growth would follow the nominal GDP.

Additionally, we considered that American countries would follow the nominal

GDP growth, based on the gross production value of 2011. Concerning Latin

America and African countries, we assumed that the construction sector would

follow the nominal GDP growth. We believe the market share of the company will

grow 1% in 2012 and 2013, in Africa.

The E&S division, it is composed by four sub-divisions: waste, water, logistics

and multi-services. To value this division, we forecasted revenues of each sub-

division to obtain the consolidated revenues. Waste and Water sub-divisions

were assumed to follow household consumption of each country. The forecasts

in the logistics sub-division were considered to follow an average between

exports and imports growth. Finally, the multi-services sub-division was

estimated to grow in line with the civil engineering market.

The associated company, Ascendi, was assumed to follow half of the Portuguese

inflation rate. Concerning Martifer, we believe that the metallic construction

division was assumed to grow with the civil engineering market. Regarding the

renewable energy division, our estimates were based on the polysilicon price and

the European Union strategy for renewable energies until 2020.

The Free Cash Flow forecast6 method depends on public information. This

information is limited and restricted which force us to assume a company’s

structure for valuation proposes. To calculate the free cash flows, firstly we

forecasted sales7 and other operating items; Secondly, we calculated the

NOPLAT by estimating EBITDA and EBIT; Finally, we subtracted the total

investment from NOPLAT. Then, we discounted the FCF using the WACC,

which was computed through debt after taxes.

To understand the evolution of Mota-Engil’s revenues, we analysed its strategic

plan for each division. Total investment was calculated based on two main

components: net working capital and tangible assets plus depreciation. For each

division and associate company, the net working capital was computed to reflect

the company’s operational activity.

7 Previously explained for each industry

Nominal Growth Rates

Annuity Perpetuity

E&C 5,88% 2,87%

E&S 2,37% 2,34%

Ascendi 0,93% 0,93%

Martifer 4,96% 3,23%

Table 4 – Nominal Growth Rates

E2011 E&C E&S Ascendi Martifer EBITDA

M € 184 82 147 64 EBIT M € 111 54 79 31

Table 5 – EBITDA and EBIT

Each E&S division was assumed to follow different variables

Nominal Growth rates

Annuity Perpetuity

E&C 5,88% 2,87%

E&S 2,37% 2,34%

Ascendi 0,93% 0,93%

Martifer 4,96% 3,23% Each E&S division was assumed to follow different variables

Martifer’s revenues forecast was based on metallic construction division and renewable division

Martifer’s sales forecast was based on metallic construction division and renewable division

€M Stake Method EV EV/EBITDA Per

Share Discount

Rate

Terminal Value

Growth Rate

Company Divisions Engineering &

Construction 100% DCF 800 4,36 3,91 9,35% 2,87%

Environment & Services 100% DCF 669 8,16 3,27 9,34% 2,34%

Associated companies Ascendi 60% DCF 401 2,70 1,96 9,29% 0,93%

Holding 100% Martifer 38% DCF 75

0,37 9,91%

Other Assets

107 Total EV

2052 8 10 9,33% 2,05%

Net Debt E2011

1449

7 Minorities E2011

98

0

Equity E2011 505 3

Ascendi was assumed to follow the Portuguese inflation rate

Source: Analysts Estimates Revenues increase on investment structures



Source: Analysts Estimates Revenues increase on investment structures






PAGE 7/33

€M Stake Method EV EV/EBITDA Per

Share Discount

Rate

Terminal Value

Growth Rate

Company Divisions

Engineering & Construction 100% DCF 800 4,36 3,91 9,35% 2,87%

Environment & Services 100% DCF 669 8,16 3,27 9,34% 2,34%

Associated companies

Ascendi 60% DCF 401 2,70 1,96 9,29% 0,93%

Holding 100%

Martifer 38% DCF 75

0,37 9,91%

Other Assets

107

Total EV

2052 8 10 9,33% 2,05%

Net Debt E2011

1449

7

Minorities E2011

98

0

Equity E2011

505

3

Number of Shares Outstanding

205

Target Price € per share

2,47

Last price € per share

1,68

Upside Potential

47%

Price as 02-June-2011

Macroeconomic Situation

After the crisis of 2008, once again, in 2011, politicians will be the key. In rich

countries, budget cuts are a top priority these days, which can cause an increase

in taxes and cut spending. The majority of these countries have deficits above

8% of GDP and a gross public debt over 99% of GDP. Sovereign borrowing is

increasing at its highest rate in history. The problems related to sovereign debt in

Greece and Ireland are affecting bond markets. As a consequence, governments

are trying to create a credible path to reduce their deficits in the medium term,

without damaging their own recovery. Across Europe, countries are raising

retirement ages, creating new rules and new organizations to encourage fiscal

honesty. The Eurozone growth is expected be 1% while Eastern Europe

countries grow at 2.8%, in 2011.

Different combinations of fiscal austerity and monetary policy may lead to

currency wars around the world.

Table 6 – Mota-Engil’s Valuation

Different combinations of fiscal and monetary policy may lead to currency wars

Different combinations of fiscal and monetary policy may lead to currency war

Different combinations of fiscal and monetary policy may lead to currency war

-6,00%

-4,00%

-2,00%

0,00%

2,00%

4,00%

6,00%

8,00%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Real GDP growth rate - Central Europe

Graph 1- Central Europe Real GDP Growth

Source: Analysts Estimates

Revenues increase on investment structures









PAGE 8/33

Emerging countries may benefit from the present slowdown of the develop world.

Investment flows are changing from Europe and USA to Africa, Asia and Latin

America.

The Portuguese economy has been suffering severe difficulties, in the past

years. As a matter of fact, national accounts are restricted by high borrowing

costs. Consequently, the Portuguese Economy returns to a recession just after

2010. In fact, gross domestic product is expected to stagnate, until 2020, with a

possibly slight recover from then on.

Latin America is predicted to growth at a 4.2% rate, in 2011. Brazil is expected to

reinforce its position as a strong economy, presenting high growth rates, mainly

explained by the external continuous demand for the country’s commodities.

FIFA World Cup 2014, as well as, the Olympic Games 2016 may also contribute

to its success.

Africa is expected to grow at 4.5%, in 2011. This region will probably suffer some

adjustments caused by a reduction in oil demand. It is also important to refer that

some African countries are facing improvements in macroeconomic management

tools. Additionally, more discipline is being introduced as a consequence of

external financial supports.

Company overview

The company resulted from a merge between Mota & Companhia and Engil, in

2000. Mota-Engil is the largest Portuguese construction company listed in PSI 20

index, operating in Africa, Europe and America. In past years, the company has

been trying to expand its international exposure and diversify from its core

business, in order to achieve sustainable growth rates and increase its EBITDA

margins. In 2010, the company achieved an EBITDA of € 237m and a net profit

of € 36m.

Company description

Mota-Engil is a construction company operating in two distinct

divisions: Engineering & Construction (E&C) and Environment

and Services (E&S). Concerning the E&C division, Mota-Engil

has activities in infrastructures, buildings and real estate,

Latin America and Africa are expected to grow above 4% in 2011




Graph 2 - Mota-Engil’s business divisions

Graph 3 - Mota-Engil's Corporate Structure

Portuguese Economy turns to a recession just after 2010




Source: Mota-Engil Revenues increase on investment structures




The world economic forum estimates an increase on




PAGE 9/33

mainly focus in Angola, Portugal and Poland. Infrastructures and buildings

represent more than 90% of the division’s revenues. In terms of EBITDA, Angola

is the most relevant country in this division. The E&S division centres its activities

in Waste, Water, Logistics and Multi-services, mainly focus in Portugal.

Moreover, logistics and waste are the most significant activities within this

division. The company changed the accounting method of its transport division

from full consolidation to equity consolidation. Furthermore, Mota-Engil has a

stake of 37.5% in Martifer, a Portuguese company present in the metallic

construction and in renewable energies.

Shareholder structure

With 62%, Mota-Engil is the main shareholder of the company. Privado Holding

SGPS, SA controls 5%, Nmás 1 Agencia de Valores SA holds 2% of the

company. Moreover, free-float represents 30% of the company. Mota-Engil’s

shares are traded in PSI20 index, the Portuguese main index. The company’s

shareholder structure reduces stock liquidity and the possibility of a successful

public tender, although it raises flexibility and decision making.

Construction Sector

The following paragraphs will describe an overview of the construction market,

and subsequently, a brief explanation of the valuation approach. Mota-Engil is

present in Portugal, Central Europe, Africa and America. This division is suffering

a reduction of its relevance in Portugal along with an increasing international

exposure, both in terms of revenues and EBITDA.

Market environment

After the crises of 2008, and as an attempt to stimulate the economy, the

Portuguese government invested in infrastructures. Large-scale public projects

EBITDA 2010 2011E 2012E 2013E 2014E 2015E 2016E

Portugal 42 35 35 42 44 45 46

Central Europe 8 9 11 11 12 13 14

Africa 107 134 150 160 168 183 196

America 5 5 5 5 5 6 6

Total 204 219 236 261 272 291 308

Free-float31%

Nmás de

Valores

5%

Privado Holding

2%

Mota Family62%

Shareholder Structure

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

2009 2010 E2011 E2012 E2013 E2014 E2015 E2016

Portugal Central Europe Africa America

After the crisis of 2008 the Portuguese government invested in infrastructure


The world economic forum

Graph 4 - Mota-Engil's Shareholder Structure

Graph 5 – E&C’s Total Revenues

Table 7 – E&C EBITDA Breakdown




Source: Mota-Engil; Analysts Estimates Revenues increase on investment structures









PAGE 10/33

create employment in the short term and might boost the economic growth in the

long-run.

The World Economic Forum estimates an increase in the investment around the

world due to a combination of factors: population growth, urbanization and the

past underinvestment. This increase will come from developing economies,

which have a higher fiscal flexibility and a greater need for infrastructural

improvement. It is important to refer that Brazil is expected to spend €758 billion

on infrastructures, between 2011 and 2014. Mota-Engil has 59% of its revenues

in civil engineering, whereas 40% in non-residential and 1% in residential

buildings. In line with this, the analysis will be mainly focused in civil engineering

and non-residential buildings.

Portugal

In 2011, the civil engineering output is expected to decrease 2.34%. Moreover,

the memorandum of understanding signed between Portugal and Troika

establishes some regulations to reduce costs in this division. Due to this,

significant projects were postponed, in order to improve public accounts and,

consequently, the country’s external financing. Despite the Portuguese economic

reality, the contract concerning the high-speed train between Lisboa-Madrid was

signed. However, the second part of the project, adjudicated to Mota-Engil

(Lisboa-Poceirão) was suspended. Portugal is suffering some setbacks in some

important PPP projects, mainly in the road sector. Nevertheless, the reduction of

public costs related with infrastructural projects is not a new issue. The reduction

of the public investment in this sector led to a decrease of company’s margins,

like EBIDTA. In fact, the government budget for construction sector registers a

decreasing trend since 2004. Moreover, excluding 2009, the value of adjudicated

projects is decreasing.

Regarding the non-residential market, the output is expected to decrease 2.89%.

However, some relevant initiatives will occur, such as school modernization. The

deterioration of the political environment associated with the current economic

crisis might decrease the investor’s confidence, and consequently, reduce the

buildings permits and project deferrals until an economic recovery. This recovery

is expected to start in 2013, but due to the present economic scenario, and the

extremely high dependency on the behaviour of national exports, the forecasts

are associated with a high risk. In what concerns public investment, the number

of contracts is expected to decrease for the following years: 2012 and 2013.

0%

5%

10%

15%

20%

1996 1998 2000 2002 2004 2006 2008 2010 2012

GFCF / TOTAL GDP Total Gross Value Production as % of GDP

Since 2004, the government budget for the construction sector is decreasing




-3,00%

-2,00%

-1,00%

0,00%

1,00%

2,00%

3,00%

4,00%

5,00%

6,00%

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

E2

01

1

E2

01

2

E2

01

3

E2

01

4

E2

01

5

E2

01

6

Real GDP growth rate

0

500

1000

1500

2000

2500

2009 2010 2011E 2012E 2013E 2014E 2015E 2016E

E&C Revenues

E&C Revenues

€M

Graph 6 – E&C’s Total Revenues

increase on investment structures



Graph 7 – GFCF vs GVP




Graph 8 – Portuguese Real GDP Growth Rate







Source: Bloomberg

Revenues


Source: EuroConstruct Revenues increase on investment structures



Graph 7 – GFCF vs GPV







PAGE 11/33

Regarding the housing market, new production is expected to decrease, as a

consequence of the current economic scenario. Once again, reconstruction and

maintenance will be the only activities to grow within this market, in the next 10

years. Concerning construction, Mota-Engil’s market share8 is 0.13% for the

residential market, 6.2% for the non-residential market and 4.99% for the civil

engineering market. We believe the company’s market share to remain stable for

the following years.

Portugal is losing its importance, both in terms of sales and EBITDA. In fact,

revenues decreased from €879 million, in 2009, to €664 million, in 2010. We

expect this reduction to continue until 2012. Due to the economic crisis, EBITDA

margins are expected to decrease in the next years.

Eastern Europe

Regarding Eastern Europe, Mota-Engil is mainly present in Poland in the civil

engineering market. The following paragraphs will focus on this specific country

and market.

In 2010, the civil engineering market has suffered some difficulties to accomplish

its financial plan, causing a stagnation of the market. However, from 2011 on, this

market is expected to grow above 6%, in nominal terms, mainly due to: airfield

runways, sport objects, water objects and other civil engineering works.

According to the Polish government estimations’, between 2008 and 2010, the

government spending in civil engineering was 33%, clearly below expectations.

In line with this, spending is expected to be transferred to the new programme

prepared by the Ministry of Infrastructure. Local government wants to: develop

the Polish road network; construct, extend and maintain a system of anti-flood

protection of the coast areas; construct a breakwater for the external program

until 2013; construct a water road from Vistula to Gdansk until 2013; prepare and

complete the Programme for the Euro 2012. Moreover, the recent economic

development is increasing the country’s needs concerning reparation and

construction of power units. It is expected an investment by fuel companies on

transfer infrastructures. Furthermore, until 2015, the country will increase its

investment on the national airports. However, after 2012, it is expected a

reduction of civil engineering market growth rate, caused by the completion of

many projects created for the EURO 2012.

8 Sales & Services /Total Gross Production Value.

0

10000

20000

30000

40000

50000

60000

2007 2008 2009 2010 2011 2012 2013

Czech Republic Hungary Poland Slovak Republic

€M

Polish government plans to develop several projects mainly, until 2013

Polish government plans to develop several projects mainly until 2013



Civil Engineering market is expected to decrease after the EURO 2012

Civil Engineering segment is expected to decrease after the EURO 2012

Civil Engineering segment is expected to decrease after the EURO 2012

Civil Engineering segment is expected to decrease after the

0

200

400

600

800

1000

2009 2010 E2011 E2012 E2013 E2014 E2015 E2016

Revenues

€M

Graph 9 – Evolution of Portuguese E&C Total Revenues Growth Rate




Graph 10 – Eastern European Countries’s Gross Production Value Growth Rate




Source: EuroConstruct Revenues increase on investment structures



Source: Analyst Estimates Revenues increase on investment structures






PAGE 12/33

In Eastern Europe, we expect Mota-Engil to have a double-digit increase of

revenues in 2011 and 2012 and a growth rate of 6%, in nominal terms, until

2016. The company’s market share is not expected to suffer any changes in this

market and EBITDA margins will remain constant in the next years.

America

Regarding America, Mota-Engil is present in Mexico and in Peru, although this

region has a slight significance for the E&C. In this sub-division, our projections

were not divided by the previous sub-segments: civil engineering, and residential

& non-residential buildings. However, the company wants to increase its market

share on this region. In 2010, Mota-Engil increased its activity in this region by

98%.

Currently, the company holds a portfolio of €251 million in Peru including a €59.5

million project in Mina de Ouro, in 2011. Moreover, in Mexico, the company

expects to increase its growth by taking advantage of the Mexican National

Infrastructure Programme through its Mexican subsidiary, Idinsa. Furthermore,

the company is expecting to enter in the Brazilian market, which has a huge

potential due to the FIFA World Cup 2014 and the Olympic Games 2016. Brazil is

not included in our estimations for this sub-division. Both, Peru and Mexico are

expected to grow at a rate higher than 4%, in real terms.

In XXI century we will assist to the increasing role of Latin America. Mota-Engil is

expected to increase its market share mostly in Peru, due to the high growth rate

the country will face between 2011 and 2013, which in the construction sector is

higher than 3%,in nominal terms. From 2013 to 2016, the country’s growth rate is

expected to increase more than 4%. Consequently, we predicted an increment in

revenues for the following years, in this sub-division. However, we adopted a

conservative approach by maintaining EBITDA margin constant at 6.02%, for the

following years next years. Mota-Engil’s market share is expected to grow 0.1%,

in 2012 and in 2013.

Africa

Mota-Engil is present in some countries in Africa, mainly in Angola. For more

than 64 years, the company developed important relations with the local

government and companies. Despite the global crisis, Angola is expected to grow

0,00%

1,00%

2,00%

3,00%

4,00%

5,00%

6,00%

7,00%

8,00%

9,00%

10,00%

2010 2011 2012 2013 2014 2015 2016

Peru Mexico Average construction growth rate

EBITDA margin in Angola was 16.1%, in 2010

EBITDA margin in Angola was 16.1% in 2010

EBITDA margin in Angola was 16.1% in 2010

EBITDA margin in Angola was

0

50

100

150

200

250

300

350

400

450

2009 2010 2011 2012 2013 2014 2015 2016

Central Europe

Central Europe

€M

Graph 11 – Evolution of Central Europe’s E&C Total Revenues Growth Rate




Graph 12 – Peru & Mexico - Real GDP and Construction Growth Growth Rate




Graph 13 – Evolution of America’s E&C Total Revenues Growth Rate




0

20

40

60

80

100

120

2009 2010 E2011 E2012 E2013 E2014 E2015 E2016

America

America

€M

Source: Bloomberg; Analyst Estimates Revenues increase on investment structures






Source: Mota-Engil; Analyst Estimates Revenues increase on investment structures






PAGE 13/33

in the next years. In line with this, the company expects to raise its market share

in this country, by focusing on new industrial activities associated with

construction. As previously explained, the macroeconomic environment of some

African countries improved in the last years and Angola is not an exception. The

financial support agreement with the IMF is imposing some discipline to the

country’s policies. Moreover, the oil and diamond markets will increase by 7% in

real terms, in 2011. The strategic plan, for the next years, predicts a massive

infrastructure reconstruction and rehabilitation to support economic development

and to deliver public services. Angola plans to reconstruct highways, bridges,

cities, and also develop the fishery sector by investing in infrastructures, until

2013. Despite the potential growth of this country, companies usually deal with

payment delays, which may cause some working capital problems. However, the

risk of default may be reduced by oil revenues which provide a long-term

financing. Mota-Engil’s EBITDA margin in Angola was 16.1%, in 2010.

Mota-Engil is also present in other markets such as Malawi, Mozambique and

Cape Verde, mainly in maintenance and highway construction. Such countries

plan to improve their infrastructures in order to develop their economy. All these

countries will growth at a rate higher than 5%, in real terms. Regarding

Mozambique, the group increased its turnover in 262%. In addition, in 2011, we

expect Mota-Engil to increase its spending about €150 million. The African

market presents a particularity that deals with the fact that the main Portuguese

construction companies are partners in several consortiums.

The previous conclusions were made under the assumption that the market

would grow along with the nominal GDP, for all the present African Countries.

In this sub-division, the company operates in infrastructures, residential and non-

residential markets. Regarding the operational performance, this region is

expected to increase, both in terms of revenues and market share. In fact, the

market share is expected to increase 1%, in 2012 and 2013. EBITDA margin is

expected to be stable in 17.09%, in the following years.

Revenues Breakdown 2009 2010 E2011 E2012 E2013 E2014 E2015 E2016

Portugal 53,14% 41,53% 36,24% 33,78% 32,99% 32,47% 31,44% 30,73%

Central Europe 17,35% 14,95% 15,68% 16,60% 16,73% 17,01% 16,98% 17,08%

Africa 30% 39% 44% 45% 46% 46% 47% 48%

America 2,54% 5,19% 4,70% 4,46% 4,35% 4,27% 4,12% 4,02%

0

50

100

150

200

250

2009 2010 E2011 E2012 E2013 E2014 E2015 E2016

EBITDA

€M

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%

35,00%

40,00%

2009 2010 E2011 E2012 E2013 E2014 E2015 E2016

Malawi Mozambique São Tomé and Príncipe Cape Verde

Mota-Engil is expected to increase its market share in Angola




Graph 14 – African Countries’ Real GDP Growth Rate




Graph 15 – E&C EBITDA in Africa Growth Rate




Table 8 – E&C Revenues Breakdown













PAGE 14/33

Valuation

In the E&C division, capital expenditures are estimated to grow in the next years.

This represents an annual increase of investments, which may expand the

company opportunities’ in this division. In fact, we expect capital expenditures to

be €142 million, in 2016.

This division was valued based under the assumptions that EBITDA margins will

be constant among all the sub-divisions, expect in Portugal. The market share

will increase in America and in Africa. Moreover, the forecasts were based in

Euroconstruct estimations and GDP growth rates, as previously explained. We

valued E&C assets in €3.91 per share.

Environment & Services

The following paragraphs will describe an overview of the construction market,

and subsequently, a brief explanation of the valuation approach.

In order to diversify from its core business, Mota-Engil invested in E&S division,

especially in waste management, water distribution, logistics and multi-services,

mainly in Portugal and Angola. However, they are also present in other

European, American and African countries, such as Brazil and Poland.

Million Euros 2011E 2012E 2013E 2014E 2015E 2016E Sales & Provision of

services 1800 1937 2033 2120 2255 2379 EBITDA 184 201 219 229 246 262

EBITDA Margin 10% 10% 11% 11% 11% 11% Wc Investment 10 8 9 5 9 7

Capex 109 113 111 116 136 142 FCFF 19 29 48 54 43 48 DFCF 19 27 40 41 31 32

EV (DEC 2011) 800 EV/EBITDA 4,36 Target Price € per share 3,91

0

5

10

15

20

25

30

35

40

45

2009 2010 E2011 E2012 E2013 E2014 E2015

Título do Gráfico

Waste Water Logitics Multiservices

M€

Table 9 – E&C Valuation

Graph 16 – E&S’s Total Revenues EBITDA Growth Rate













PAGE 15/33

The company may take advantage of the investment made by the EU in Poland,

both in water and waste sub-divisions, which might increase the company’s

revenues in the country. Moreover, the polish government wants to raise its

energetic efficiency, which may increase the national competitiveness in this

country. In Africa, Mota-Engil might take advantage of the economic growth,

where there is huge necessity for improvement in water supply and sanitation

systems. Regarding Brazil, some improvements have to be made in these areas.

As previously explained, we concluded that the sub-division of waste and water

depends mostly on household consumption, since its clients are households. We

expect the household consumption to increase in Brazil, Angola and Poland and

to decrease in Portugal, in 2011 and stagnated, until 2020.

The E&S was partially affected by the current Portuguese crisis. Between 2009

and 2010, the EBITDA margin increased in all sub-divisions, except in water

distribution and multi-services. The E&S was partially affected by the current

Portuguese crisis. According to the Organisation for Economic Co-operation and

Development (OCDE), Portugal has to increase the efficiency and quality of its

environment policies. The “OCDE Environment Performance Review Portugal

2011” report states that domestic waste is affecting the water quality and the

industrial & urban waste is increasing. Some of the measures adopted by the

Portuguese government, regarding environmental taxes, will improve the fiscal

sustainability. Also, the economic activity may increase associated with the

environmental market.

However, the national legislative elections will have impacts on this division.

Partido Social Democrata (PSD) wants to increase the efficiency in energy

consumption. Either position will benefit Mota-Engil, which might take advantage

of the new government initiatives.

As previously explained, waste and water sub-divisions are assumed to follow

household consumption. However, the last sub-division is relatively stable, since

it depends mostly on concession contracts with boroughs. We assume multi-

services sub-division to follow the civil engineering division. As mentioned before,

logistics was assumed to follow the country’s imports and the exports. In fact,

external transactions are highly sensitive to the economic reality, both at national

and international levels. In 2010, logistics were the most relevant sub-division for

the company, followed by waste, water and multi-services, both in terms of

revenues and EBITDA. We expect this trend to remain constant.

-20,00%

-10,00%

0,00%

10,00%

20,00%

Change of Imports of Goods

Change of Exports of Goods

PSD election may have a positive impact on E&S

Legislative elections will have a positive impact on E&S



Portuguese’s fiscal sustainability will improve




Graph 17 – Private Consumption vs Real GDP Growth Rate




Graph 18 – Change in Imports and Exports Growth Rate




Source: OCDE 2011 Report Revenues increase on investment structures









PAGE 16/33

Waste Management

Waste management, in Portugal, has a relatively low level of privatization when

compared to other European countries. The memorandum of understanding

between Portugal and Troika predicts privatizations for this sub-division. These

structural changes might represent the acquisition of some public companies,

and may increase of the Mota-Engil’s market share. Moreover, Industrial and

urban waste are expanding in Portugal, which can cause an increase of the

company’s revenues. However, we expect EBITDA margin to remain stable, in

the next years. The economic crises that the country is facing may affect the

financial stability of some companies in this division, although the economic

sustainability is expected to remain unchanged. Mota-Engil owns Suma

subgroup, a market leader in the national waste market, with more than ten years

of experience. The company owns 50% of waste management market share, in

industrial and commercial synergies. As a consequence of its strategic

internationalization plan, Suma is present in foreign markets. In fact, this

company is present in Poland, a highly competitive country given that projects

are award by the condominium.

Regarding Mota-Engil’s international exposure, the company acquired, in 2010,

Vista Waste Management in Angola, a services providing company for waste

collection, environmental education and urban cleaning. It is important to keep in

mind that waste is one of the main priorities in Angola, for the following years. As

for Brazil, Mota-Engil owns Geo Vision, a company with operations in general

waste management.

We expect an increase of Mota-Engil’s market share in Angola and Brazil and a

decline in Poland and Portugal, for the following years. The relationship that

Mota-Engil has with local companies and with the government might reinforce the

company’s position in Angola. Waste management is the second largest sub-

division of E&S, with revenues of €119 million, in 2010. We believe that revenues

EBITDA 2010 2011E 2012E 2013E 2014E 2015E 2016E

Waste 32 32 33 33 33 34 34

Water 18 18 18 18 18 18 18

Logistics 32 33 34 35 36 37 39

Multi-Services 4 4 4 4 4 4 4

Total 81 82 83 85 86 88 90

EBITDA Margin 2010 E2011 E2012

Waste 26,89% 26,89% 26,89%

100

110

120

130

20

09

20

10

E2

01

1

E2

01

2

E2

01

3

E2

01

4

E2

01

5

E2

01

6

Waste

Waste

M€

Mota-Engil has a market share of 50% in this division

Mota-Engil has 50% of market share in this division



Waste is a strategic priority in Angola




Table 10 – E&S EBITDA Breakdown

Table 11 – Waste Division: EBITDA Margin

Graph 18 – Waste division’s Total Revenues




Source: Mota-Engil; Analyst Estimates













PAGE 17/33

will increase until 2016 and EBITDA margins are expected to remain stable at

27%, in the following years.

Water Distribution

The water distribution sub-division in Portugal suffers from a relatively low level of

privatization. As it was previously mentioned, the memorandum of understanding

between Portugal and Troika encouraged privatizations in general. This might

represent the acquisition of some public companies and a possible increase of

the company’s market share. In Portugal, there is a considerable disparity in

terms of the prices caused by the different prices applied by management

entities. In some locations, costs are higher than tariffs. Also, there is a difference

in prices between management entities, across the country. On average, the

price of water supply is higher for the consumer in concessions, when compared

municipalities by €48 per 120m3 of consumption. The average price of a

concession is nearly €131.61 and €83.61 for municipalities9. Regarding sewage,

concessions are cheaper than SMAS and EP but more expensive than municipal

supply. The cost a sewage supply concession for the consumer is, on average,

€54.51 for 120m3 of consumption. Mota-Engil has activities in water supply and

sewage concessions controlled by the subsidiaries of Indaqua Subgroup, the

second largest sub-division within E&S.

As previously explained, water distribution was assumed to follow household

consumption. Due to the current Portuguese economic crisis, household

consumption is estimated to decrease, in 2011. Consequently, Indaqua is

expected to reduce its revenues by 0.66%, in nominal terms. From 2012 on, this

subsidiary will probably increase its revenues and maintain its EBITDA margin

around 23%. Mota-Engil’s main competitive advantage, in this sub-division, is the

knowhow acknowledged by the company regarding concessions and project

financing. According to the memorandum of understanding signed between

the IMF and Portugal, the national government should prepare an inventory of

assets owned by municipalities to examine the scope for privatization. Moreover,

Indaqua might be able to improve municipalities’ water networks and to reduce

the water supply prices. We expect Indaqua to maintain its market position, due

to its experience in the field and the maturity of the market. Regarding foreign

9 Fonte:APDA.

EBITDA Margin 2010 E2011 E2012

Water 23,38% 23,38% 23,38%

Portugal has a considerable description in prices along the country

Portugal has huge differences in prices along the country

Portugal has huge differences in prices along the country

Portugal has huge differences in prices along the country Mota-Engil has activities in water sub-division controlled by the subsidiaries of Indaqua

Mota-Engil has a subsidiary which is the second biggest company in the Portuguese market



Table 12 – Water Division: EBITDA Margin







PAGE 18/33

markets, Indaqua is planning to expand its activity to countries such as Poland,

Angola, Peru and Brazil.

Logistics

Despite the 2008 global crises, we expect an increase in transportation of

merchandise at a global level. The continuous globalization of international

markets will assure, and support a growth rate around 3% of the logistic sub-

division, in Portugal. The infrastructural structure of this sub-division has some

bottlenecks that should be solved to improve the competitiveness of Portuguese

companies. Logistics, as a trading base between Portugal and the rest of the

world, may contribute to the economic development of the country. Portugal has

to increase the merchandize traded and to organize the transportation market to

raise its competitiveness. To achieve these goals, the national government

defined a strategy based on the development of logistics, along with the market

needs. The strategy defined by the government for this sub-division gives an

important role to the private sector, which is expected to promote and manage

some infrastructures that already exist and to create new ones.

As private company, Mota-Engil has a crucial role in this sub-division. Mota-

Engil’s main activities, in this sub-division, are related to road-rail terminals,

integrated logistics and carriage of goods by rail. As a market leader in Port’s

containers terminals, Mota-Engil has revenues of €159 millions, in 2010. This

division is the most exposed to changes in the global economy. Logistics are

dependent on Portuguese imports and exports. Despite, the current economic

situation, the company improved its results, both in terms of revenues and

EBITDA, mainly caused by the growth in the Portuguese exports. Over the past

years, Mota-Engil gained most of the ports concessions’. Therefore, the

company’s market share is near 80% concerning containers handling. The

principal sub-division subsidiary in logistics is TERTIR, market leader in port

container handling.

We expect an increase in revenues and EBITDA due to the probable evolution of

national exports and imports. From 2013 to 2016, exports are expected to

increase more than 4.5% and imports are expected to increase more than 2.5%

for the same period. The EBITDA margins are expected to remain stable around

20%. Moreover, we expect TERTIR to maintain its leading position in this market

due to the integrated logistics solutions that the company is providing. In fact, the

0,00%

2,00%

4,00%

6,00%

E2011 E2012 E2013 E2014 E2015 E2016

Logistics

Logistics is expected to grow around 3% in Portugal for the following years

Logistics is expected to grow around 3% in Portuga next years



0

50

100

150

200

250

2009 2010 E2011 E2012 E2013 E2014 E2015 E2016

Logistics

Logistics

€M

Graph 19 – Logistics division’s Total Revenues




Logistics will contribute to the

Portuguese economic growth

Graph 20 – Logistics division’s Change in EBITDA












PAGE 19/33

company invested in integrated solutions, which promotes cross-cutting and

integration of assets, in port areas. In 2010, Mota-Engil won a concession in

Peru, which is a signal of the internationalization effort that is being made.

Multi-Services

Regarding multi-services sub-division, Mota-Engil has a number of companies

engaged in the provision of services, although they are not part of the company’s

core business. Mota-Engil offers services such as building and facility

maintenance, rehabilitation of pipelines, green spaces, car parks, and electronic

markets among others, mainly in Portugal. This sub-division deals with a high

competition level, mainly caused by the fact that the majority of the projects do

not require a considerable investment. In fact, Mota-Engil does not have a

competitive advantage in this market due to the fact that are already companies

specialized in this type of services. Multi-services reduced its sales from 2009 to

2010. The EBITDA margin decreased from 7.55% to 6.9%, in the same period.

We expect the company’s EBITDA margin to be constant for next years. Given

that, most services provided by this sub-division complement civil engineering

projects, we expect a reduction in Mota-Engil’s revenues, for the next 2 years,

and a slight increase from 2013 on.

Revenues Breakdown 2009 2010 E2011 E2012 E2013 E2014 E2015 E2016

Waste 34,04% 29,02% 29,11% 29,06% 28,70% 28,31% 27,93% 27,52%

Water 14,59% 18,78% 18,51% 18,35% 18,07% 17,78% 17,46% 17,13%

Logistics 44,38% 38,78% 39,40% 39,80% 40,38% 40,97% 41,57% 42,20%

Multi-Services 16,11% 14,15% 13,70% 13,51% 13,56% 13,63% 13,71% 13,80%

Valuation E&S division

Capital expenditures are estimated to be around €30 million. It represents a

significant amount to maintain, or even increase, the company’s position in this

market. In fact, we expect capital expenditures to be €28 million, in 2016.

CAPEX Breakdown E2011 E2012 E2013 E2014 E2015 E2016

E&S 28 30 32 33 35 28

Logistics will play an important role on Portuguese economic growth




3,6

3,8

4

4,2

4,4

2009

2010

E201

1

E201

2

E201

3

E201

4

E201

5

E201

6

Multi-services Segment

EBITDA

€M

Multi-Services division faces a tough competition in the market

Multi-Services division faces a huge competition in the market

Multi-Services division faces a tough competition in the market

Multi-Services division faces a huge competition in the market

Graph 21 – Multi-Services EBITDA Evolution



Table 13 – E&S Revenues Breakdown

Table 14 – E&S CAPEX Breakdown













PAGE 20/33

This division was valued under the assumption that EBITDA margins will be

constant among all the sub-divisions and the market share will remain stable.

Concerning forecasts, we assumed water and waste to follow household

consumption growth. For logistics, we computed an average between imports

and exports. The growth path in multi-services is expected to be similar to the

civil engineering division, as previously explained. E&S assets value € 3.27 per

share.

2011E 2012E 2013E 2014E 2015E 2016E

Sales & Provision of services 413 419 427 437 447 458 Operating profit before interest, depreciation & provisions (EBITDA) 82 83 85 86 88 90

EBITDA Margin 20% 20% 20% 20% 20% 20%

Wc Investment -1 -2 -3 -3 -1 -1

Capex 28 30 32 33 35 28

FCFF 39 34 36 35 35 36

DFCF 36 33 31 27 24 27

WACC 9,34%

EV (DEC 2011) 669

EV/EBITDA 8,16

Target Price € per share 3,27

Ascendi

The following paragraphs will describe an overview of the transport concession

market, and subsequently, a brief explanation of the valuation approach. In the

transport concession area, Ascendi is a Mota-Engil’s associated company and

results from a partnership between Banco Espírito Santo Group and Mota-Engil

Group. Ascendi is present in Portugal, Spain, Latin America and Africa. The

company’s portfolio is composed by €11 billion of global investment, more than

€850 million assets, near 3.000 km in road and has 1.500 km under exploration.

The revenues associated to this are worth €117 million, in 2009 and the Net

Debt/EBITDA ratio was 12.4x, in 2009, as a consequence of number of

concessions phase.

Given that Mota-Engil changed its accounting method for transport concession

from full consolidation to equity consolidation, the visibility of this division was

reduced. As a consequence, no audited public information is available for

analysts in what concerns Ascendi’s financial data. Based on that, and

158

160

162

164

166

168

170

172

174

20

10

20

11

E

20

12

E

20

13

E

20

14

E

20

15

E

20

16

E

Sales & Provision of services

Revenues

M€

Table 15 – E&S Valuation

Graph 22 – Ascendi’s Total Revenues













PAGE 21/33

considering the information presented on consolidated report & accounts of

Mota-Engil 2009, revenue were estimated from 2010 on. Given that Mota-Engil is

receiving a fee from the local government related to the number of motorways,

which are available for use, they are less exposed to traffic risk. The fact that

Ascendi’s portfolio is also composed by network availability, explains why they

have higher margins than their peers, which are more exposed to traffic changes.

It is important to refer that, due to the Portuguese economic situation, Ascendi

might suffer from payment issues, since its main client, Estradas de Portugal, is

facing liquidity problems.

Despite the reduction of the visibility of this division, we decided to valuate

Ascendi, based under the assumption that the company will maintain its volume

of revenues and its margins, throughout time. Ascendi’s revenues are expected

to growth with the Portuguese inflation rate. As previously explained, the

company receives a fee from the government and the majority of its

concessions are in Portugal. By 2016, we expect the company’s EBITDA

margin to be 90%. Ascendi is increasing its international presence with

concessions in: Spain, Mexico, Brazil and Mozambique. In 2010, the company

won a concession in Ka Tembe, Mozambique. We expect an increase of its

international exposure in this continent. Nowadays, Portugal represents more

than 78% of the company’s investment, justified by the number of concessions in

Portugal. In fact, Ascendi has 10 concessions in Portugal and 5 concessions

abroad. The total portfolio of the company is presented below:

Concessionaire Actual holding

% Foreseen Holding

% Km Ending Investment

Portugal Lusoponte - Travessia do Tejo 38,02 38,02 19,5 2030 897

Auto-Estradas do Norte 74,87 74,87 175 2029 1272

Auto-Estradas da Beira Interior

22,23 178 2029 812

Auto-Estradas da Costa da Prata 80,2 80,2 109,6 2030 499

Auto-Estradas da Beiras Litoral e Alta 80,2 80,2 172,5 2031 1130

Auto-Estradas do Grande Porto 80,2 80,2 55,5 2032 841

Concessões Rodovíarias da Madeira

4,75 44,2 2025 390

Auto-Estradas da Grande Lisboa

80,2 91,1 2036 290

Estradas do Douro Interior 8,85 8,85 242,3 2038 931

Estradas do Pinhal Interior 8,09 8,09 520,3 2040 1429

Total Portugal

1608

8491

2010 2011E 2012E

EBITDA margin 89,74% 89,74% 89,74%

78% of Ascendi’s investment is in Portugal




0,00%

0,50%

1,00%

1,50%

2,00%

2,50%

3,00%

2010 E2011 E2012 E2013 E2014 E2015 E2016

Inflation Rate

Graph 23 – Portuguese Inflation Rate




Table 17 – Ascendi’s Portfolio

Table 16 – Ascendi’s EBITDA Margin













PAGE 22/33

Concessionaire Actual holding

%

Foreseen Holding

% Km Ending Investment

Spain Autovia de Los Vinedos

50 75 2033 210

Autopista Madrid - Toledo

15 81 2040 600 Total Spain

156

810

Latin America Mexico - Concessionaria Perote 30 50 60 2038 389

Brazil - Concessionaria Tietê

40 415 2039 470 Total Latin America

475

859

Africa Mozambique - Nova Ponte de Tete 40 40 701 2039 151

Total Africa

701

151

Railway Concessions MTS - Metro, Transportes do Sul 18,09 24,89 20 2032 338

TOTAL

3046

10854

The capital expenditure is expected to reach €107 million, in 2016. This is

increase might be explained by future concessions under construction stage.

All Ascendi’s concessions were valuated together, using a DCF method. We

based our valuation under the assumption that EBITDA margin and market share

will remain constant over the years. To obtain Ascendi’s beta, we applied the

same method of Mota-Engil’s valuation. Brisa, Actividades de Construccion e

Servicios, Eiffage and Autostrada Torino-Milano were chosen as comparables.

The value obtained for the discount rate 9.29%. Additionally, the terminal value

that obtained for the associated company was € 401 million. Ascendi’s assets

value € 1.96 per share.

2011E 2012E 2013E 2014E 2015E 2016E

Capex Ascendi 68 85 79 82 84 107

The value obtained for the Ascendi’s discount rate was 9.29%

Ascendi’s discount rate obtained was 8,84%



Table 17 – Ascendi’s Portfolio

Table 18 – Ascendi’s Capex










PAGE 23/33

Martifer

The following paragraphs will describe an overview of the metallic construction

and renewable energy market, and subsequently, a brief explanation of the

valuation approach. Martifer SGPS SA, is a Mota-Engil’s associate company,

operating in 21 countries with 16 industrial units. The company is mainly focused

on metallic constructions and renewable energies. Martifer is one of the main

players of the metallic construction division, due to its specialization in activities

such as: steel structures, aluminium and stainless steel. Martifer main projects’

are bridges, airports, warehouses and towers. In 2010, for the metallic

construction division, the company reached €292 million in revenues, €22 million

in EBITDA and a net profit of €0.4 million. Regarding renewable energy, the

company is divided in three business divisions: solar energy, wind and energy

equipments. Mainly focused on the solar sub-division, Martifer has activities

particularly on distribution and engineering, procurement and construction. The

company offers products like: photovoltaic modules, trackers, photovoltaic kits. In

2010, the company reached €221 million in revenues, €22 million in EBITDA and

a net profit of €10.4 million in solar division. According to the main guidelines of

the company for 2013, Martifer is expected to focus its activity on metallic

construction mainly in Europe, Angola and Brazil. Moreover, in the solar sub-

2011E 2012E 2013E 2014E 2015E 2016E

Sales 163 165 166 168 169 172

EBITDA 147 148 149 150 152 154

EBITDA Margin 90% 90% 90% 90% 90% 90%

Wc Investment 0 0 0 0 5 -5

Capex 68 85 79 82 84 107

FCFF 56 39 45 44 38 32

DFCF 58 38 40 36 32 16

WACC 9,29%

EV (DEC 2011) 401

EV/EBITDA 2,73

Price per Share 1,96

Mota-Engil owns 37.5% of Martifer.

Mota Engil owns 37.5% of Martifer.



0

100

200

300

400

500

600

700

800

900

2010 E2011 E2012 E2013 E2014 E2015 E2016

Revenues

Revenues

€M

Table 19 – Ascendi’s Valuation

Graph 24 – Martifer’s Total Revenues













PAGE 24/33

-5,00%

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%

E2011 E2012 E2013 E2014 E2015 E2016

Portugal Spain Eastern Europe Others Angola

division, the company plans to invest in attractive projects in terms of profit

margin.

T

o

valuate Martifer, as previously explained, we used the same methodology of

Mota-Engil. Furthermore, we projected revenues based on the growth rates of

metallic construction and renewable energy sector. Given that the main projects

of the company are at an infrastructural level, we assumed that the metallic

construction will grow at the same rate as the civil engineering market10

of each

country where the company is present. Moreover, we assumed that the

company’s market share will remain constant due to a reduction on

the company’s exposure to the Iberian market and an increase on

its positions in other regions.

Concerning the renewable energy division, we concluded that the

solar energy sub-division represents the majority of this division. In

2010, Martifer received an award for “Best Renewable Energy Solution – Europe”

in the “New Economy Magazine”, which aims to recognize companies’ innovative

and competitive qualities within this market. Solar energy, the main renewable

energy sub-division, depends on European tariff structures, European demand

and polysilicon supply. By 2020, the European Union wants to achieve 20% of its

energy consumption on renewable energy. In line with this, solar energy would

have an important role. As the cost of solar modules decreases, this technology

is becoming a competitive form of energy. Moreover, polysilicon price decreased,

in January 2011 and this trend is expected to continue in the following years.

Additionally, the German Environment ministry, the world’s largest solar market,

and German Solar Industry, agreed to create a flexible tariff adjustment, in 2011.

We believe that wind and energy equipment, the other renewable sub-divisions

will follow the European Union renewable strategy for 2020. In line

with this, we based our forecasts on future polysilicon spot price

and on European Union renewable strategy for 2020. We

assumed the company’s market share to remain constant, as a

consequence of the company’s focus on projects with attractive margins. In 2011,

the growth rate in the renewable energy division is expected to be 10%.

10

Civil engineering growth rate was previous forecasted and explained in the construction segment of Mota Engil.

Million Euros 2010 E2011 E2012 E2013 E2014 E2015 E2016

EBITDA 59 64 68 72 75 79 82

EBIT -21 31 35 38 40 41 45

Net Profit -52 6 53 59 62 65 69

Metallic Construction Revenues Growth Nominal Terms

E2011 E2012 E2013 E2014 E2015 E2016

6,58% 5,15% 4,77% 3,66% 6,13% 5,61%

Polysilicon Price

E2011 E2012

78,93 78,46

Renewable energy Sector Revenues Growth - Nominal Terms

E2011 E2012 E2013 E2014 E2015 E2016

10,01% 8,01% 7,01% 4,15% 4,16% 4,16%

Table 20 – Metallic Construction Growth

Graph 25 – Metallic Construction Growth by Country




Table 20 – Martifer’s Financial Information

Table 21 – Polysilicon Price

Table 22 – Renewable Division Growth

Source: EuroConstruct; Analyst Estimates Revenues increase on investment structures






Source: Mota-Engil; Analyst Estimates













PAGE 25/33

Considering the company’s strategy of focusing on metallic construction, EBITDA

Margin is expected to remain at 9.74%, until 2016. However, Martifer’s renewable

energy divisions is expected to register a significant increase.

Valuation Martifer

In previous years, Martifer has invested large amount on capital expenditures.

We expect a reduction in the investment on capital expenditure for the next

years, reaching €21 million, in 2016.

The company’s beta was obtained by using its own stock returns, as previously

explained. The cost of equity obtained was 10.29% and the cost of debt11

(based on Portuguese Yield Curve and on Euribor forecasts) was 12.29%.

Consequently, the discount rate obtained for Martifer was 10.35%. Usually, to

obtain the Mota-Engil’s terminal value, analysts use the market capitalization of

Martifer. However, we believe that the market is undervaluing Martifer, so we

decided to value this Mota-Engil’s associated company through the DCF method.

The value obtained was € 702 million, which means that the target price for

Martifer has an upside potential of 40%12, until December 2011.

E2011 E2012 E2013 E2014 E2015 E2016

Sales & Provision of services 655 697 738 766 806 846

EBITDA 64 68 72 75 79 82

EBITDA Margin 9,74% 9,74% 9,74% 9,74% 9,74% 9,74%

Wc Investment -5 -9 39 11 15 15

Capex 10 8 2 17 11 16

FCFF 71 78 42 57 60 49

DFCF 71 71 34 43 41 31

WACC 9,91% EV (DEC 2011) 702 EV/EBITDA 11,01

11

Previously explained on Mota Engil debt valuation. 12

Data from 02-June-2011.

Million Euros E2011 E2012 E2013 E2014 E2015 E2016

Capex 10 8 2 17 11 16

EBITDA margin is expected to be around 9.74% in the following years




The discount rate used for Martifer was 10.35%

The discount rate used for Martifer was lalala



Table 23 – Martifer’s Capex

Table 24 – Martifer’s Valuation

Source: Analyst Estimates



Source: Analyst Estimates







PAGE 26/33

Financial Statements

2010 2011E 2012E 2013E 2014E 2015E 2016E

Income Statement

Sales & Provision of services 2004 2210 2351 2456 2552 2698 2833 Costs 1767 1949 2073 2157 2243 2368 2486 EBITDA 237 261 278 299 310 330 348 EBITDA Margin 11,83% 11,81% 11,84% 12,17% 12,13% 12,24% 12,27% DA 87 85 93 100 107 113 122 Other results 18 20 22 22 23 24 25 EBIT 132 156 164 175 177 189 195 Interest 51 85,12 86 118 122 151 149 Gains / Losses on Associate companies 7 7 7 7 7 7 7 EBT 81 71 78 58 56 39 47 Tax 19 18 20 15 14 10 12 Taxes 25,20% 25,20% 25,20% 25,20% 25,20% 25,20% Minority Interest 33 29 32 23 23 16 19 Net Profit 29 24 26 20 19 13 16 Net Profit (to the group) 36 31 33 27 26 20 23 Net Income to Equity holders 22 25 18 18 12 15 EPS 0,14 0,16 0,12 0,12 0,08 0,11




PAGE 27/33

2010 2011E 2012E 2013E 2014E 2015E 2016E

Balance Sheet

Assets Non Current

Intangible & Goodwill assets 400 400 400 400 400 400 400

Fixed Assets 569 620 675 715 762 817 868

Customers and other debtors (Long Term) 61 65 69 74 76 82 87

Financial Investments 582 582 582 582 582 582 582

Total Non Current Assets 1612 1667 1731 1771 1821 1882 1937

Current Assets Customers & other debtors &

inventories 1514 1537 1688 1658 1780 1776 1850

Other Current Assets 330 417 475 515 555 614 669

Total current assets 1844 1954 2163 2173 2335 2390 2520

Total Assets 3456 3620 3895 3944 4178 4272 4456

Liabilities

Net debt 1215 1138 1313 1234 1389 1329 1380

Net Debt Adjustment

-29 -60 -89 -90 -127 -147

Suppliers & sundry creditors 1154 1084 1221 1127 1248 1171 1206

Other Liabilities 606 922 882 1117 1053 1313 1407

Total Liabilities 2975 3116 3356 3388 3600 3685 3847

Equity

Net Income 36 31 33 27 26 20 23

Share Cap; Reserves; Retained Earnings 445 474 505 529 552 567 586

Dividends

Total Equity 481 505 539 556 578 587 609

Total Equity & Liabilities 3456 3620 3895 3944 4178 4272 4456




PAGE 28/33

Appendix – Cash Flow Statements

2010 2011E 2012E 2013E 2014E 2015E 2016E

Cash Flow Statement

Net Profit 36 31 33 27 26 20 23

DA 87 85 93 100 107 113 122

CashFlow from operating activities 123 116 126 127 133 134 145

Net Working Capital -35 -132 116 -125 107 -121 4

Capex 79 135 148 141 154 169 172

CashFlow from inv. Activities 44 3 269 15 261 47 176

Change in Financial Debt 102 -518 -174 -347 -347 -347 -177

FCFE 181 -405 -317 -235 -475 -261 -208

Change in Equity 21 -36 -31 -33 -27 -26 -20

Cash Flow from financing activities 21 -36 -31 -33 -27 -26 -20

Cash and cash Equivalents

-441 -348 -269 -502 -287 -228

E&C

Cash Flow Statement 2010 2011 2012 2013 2014 2015 2016 2021 TV

Sales & Provision of services 1599 1800 1937 2033 2120 2255 2379

Costs Fixed 1437 1617 1736 1814 1892 2009 2118

EBITDA 162 184 201 219 229 246 262

EBITDA Margin 10,13% 10,21% 10,37% 10,76% 10,79% 10,92% 10,99%

DA 55 58 66 73 78 83 91

Other results 13 15 16 16 17 18 19

EBIT + Gains & Losses on Martifer 93 109 117 128 132 143 149

% Tax 26,27% 26,27% 26,27% 26,27% 26,27% 26,27% 26,27%

Taxes 24 29 31 34 35 37 39

Tax adjustment -10 0 0 0 0 0 0

NOPLAT 78 80 86 94 97 106 110

Depreciation 55 58 66 73 78 83 91

Net Working Capital 52 10 8 9 5 9 7

Capex (tangible assets) 79 109 113 111 116 136 142

FCFF 2 19 31 46 54 45 52 219 757

Adjusted CashFlow 19 29 48 54 44 50 215 740

DCF 19 27 40 41 31 32 137 473

NPV 800




PAGE 29/33

E&S

Million Euros 2010 2011 2012 2013 2014 2015 2016 2021 TV


Costs 329 331 336 343 350 358 367

EBITDA 81 82 83 85 86 88 90

EBITDA Margin 19,76% 19,82% 19,85% 19,83% 19,81% 19,78% 19,76%

DA 30 24 25 26 27 28 29

Other results 4 4 4 4 4 4 4

EBIT + Gains and Losses 45 52 52 52 51 51 50

% Tax 22,83% 22,83% 22,83% 22,83% 22,83% 22,83% 22,83%

Taxes 10 12 12 12 12 12 12

Tax Ad -7 0 0 0 0 0 0

NOPLAT 28 40 40 40 39 39 38

Depreciation 30 24 25 26 27 28 29

Net Working Capital 83 -1 -2 -3 -3 -4 -4

Capex (tangible assets) -3 28 30 32 33 35 28

0 1 2 3 4 5 5 5

FCFF -22 36 37 37 36 35 43 173 600

Adjusted FCFF

36 36 37 36 35 43 171 593

DCF

36 33 31 27 24 27 110 380

NPV

669

Ascendi

Cash Flow Statement 2010 2011E 2012E 2013E 2014E 2015E 2016E TV


Costs 17 17 17 17 17 17 18

EBITDA 147 147 148 149 150 152 154

EBITDA Margin 89,74% 89,74% 89,74% 89,74% 89,74% 89,74% 89,74%

DA 49 68 68 69 69 70 70

Other results 0 0 0 0 0 0 0


% Tax 26,85% 26,85% 26,85% 26,85% 26,85% 26,85% 26,85%

Taxes 26 21 22 22 22 22 23

Tax Ad 0 0 0 0 0 0 0

NOPLAT 72 58 58 59 59 60 61

Depreciation 49 68 68 69 69 70 70

Net Working Capital 0 0 0 0 0 0 0

Capex (tangible assets) 510 68 85 79 82 84 107

FCFF -389 58 41 48 47 46 24 286

DCF 58 38 40 36 33 16 187

Adjusted DCF 58 38 40 36 33 16 186

NPV 407




PAGE 30/33

Martifer

Million Euros 2010 E2011 E2012 E2013 E2014 E2015 E2016 FV

Cash Flow Statement


Costs 547 591 629 666 692 728 764

EBITDA 59 64 68 72 75 79 82

EBITDA Margin 9,74% 9,74% 9,74% 9,74% 9,74% 9,74% 9,74%

DA 26 24 23 22 21 21 20

Other results 54 9 10 12 13 17 18


% Tax 29,97% 29,97% 29,97% 29,97% 29,97% 29,97% 29,97%

Taxes 6 22 24 26 27 28 30

Tax Ad -22 0 0 0 0 0 0

NOPLAT -9 52 57 61 64 66 70

Depreciation 26 24 23 22 21 21 20

Net Working Capital -120 -5 -9 39 11 15 15

Capex (tangible assets) -5 10 8 2 17 11 16

0 1 2 3 4 5 5

FCFF 142 71 80 41 57 61 50 665

Adjusted FCFF

71 78 42 57 60 49 658

DCF

71 71 34 43 41 31 410

NPV

702

Appendix – Portuguese Market risks

In the 6th of May 2011, Portugal signed a support plan with Troika, for a joint financing package of €78

billion. The main goals of the support plan established an increase of the Portuguese competitiveness,

growth and jobs. Furthermore, the plan wants to strengthen the fiscal policy, reduce the budget deficit to 3%

of the GDP, by 2013, and stabilize public debt. Additionally, measures to strength regulation, supervision

and to increase bank’s capital positions are also foreseen in the agreement. Portugal is also expected to

suffer an increase on privatizations, state divestures and to fight corruption. We believe that those measures

will decrease short-term GDP growth and increase exports.

Portugal is expected to face a recession, at least, in the next 2 years and stagnate for the following years.

Based on these expectations, Portugal might suffer a breakdown in confidence levels and, consequently,

face a reduction in investment, deposits and an increase of bad credit.

Regarding the banking system, Portuguese banks are facing the highest historical risks. The banking system

is suffering difficulties to finance outside the ECB and high bond yields are a challenge. In April 2011, the




PAGE 31/33

ECB pressured Portuguese banks to stop buying national government debt in order to reduce the banks’

exposure.

Appendix – Portuguese Sovereign Public Debt

Despite the Memorandum of Understanding between Portugal and Troika, the Portuguese government

bonds yields remain high. Also, the potential peripheral spreads caused by countries, such as Greece,

created, and are still creating, a pressure on Portuguese bonds. The sovereign risk is increasing CDS

market.

The impact of the Portuguese Sovereign Public Debt on Mota-Engil’s debt:

Mota-Engil cost of debt is being affected by the Portuguese credit crisis. The majority of the company’s debt

comes from bank loans, which are exposed to the Portuguese sovereign debt. The difficulties that

Portuguese banks are facing to obtain credit, the increase of the banks spreads, as well as, the increasing

constraints that they are being created to lend money of infrastructural projects will probably increase the

company’s debt. Nowadays, banks are taking fewer risks and lending money to riskless projects. In line with

this, Mota-Engil is expected to have liquidity problems in the next years, due to the Portuguese economic

crisis. Our estimated cost of debt is based on the country’s sovereign debt, adjusted to 12M Euribor.

Appendix – Strategic Plan 2009-2013

In 2009, Mota-Engil presented to its shareholders and investors the strategy of the company for the next 5

years. Briefly, the company wants to adopt a policy of a continuous and sustainable growth based on

diversification to other business sub-divisions with high margins, mainly through the environment and

services division. In Portugal, the company is planning to be market leader in all the divisions in which it is

present. Mota-Engil intends to base its growth strategy in Europe, America and Africa.

CDS Price

Germany 70,67

Portugal 892,88

Spain 361,47

Ireland 844,06

Hungary 400,82 Czech Republic 126,60

Slovakia 135,78

Poland 239,90

Romania 363,56 0%

2%

4%

6%

8%

10%

12%

14%

1y 2y 3y 4y 5y 6y 10y 15y

Portuguese Yield Curve




PAGE 32/33

Furthermore, the company plans to decentralize power to local business units, in order to create synergies

between business divisions. Regarding the engineering and construction division, the company is planning

to improve its margins and to increase the efficiency of the operational costs.

Appendix – Martifer

€M EV EV/EBITDA Per

Share Discount

Rate Nominal Growth Rate

2016-2021 Terminal Value Growth

Rate

Company divsions

Martifer 702 11,11 6,99 9,91% 5% 3,23%

Associates companies

Other Assets 13 0,21 0,13

Total EV 716 11 7 9,91% 4,96% 3,23%

Net Debt E2011 482

5

Minorities E2011 32

0

Equity E2011 201

2

Number of Shares Outstanding 101

Target Price 2,00

Last price 1,43

Upside Potential 40%

Price as 02-June-2011




PAGE 33/33

Disclosures and Disclaimer

Research Recommendations

Buy Expected total return (including dividends) of more than 15% over a 12-month period.

Hold Expected total return (including dividends) between 0% and 15% over a 12-month period.

Sell Expected negative total return (including dividends) over a 12-month period.

This report was prepared by a Masters of Finance student, following the Equity Research – Field Lab Work Project, exclusively for academic purposes. Thus, the author, which is a Masters in Finance student, is the sole responsible for the information and estimates contained herein and for the opinions expressed, which reflect exclusively his/her own personal judgement. All opinions and estimates are subject to change without notice. NOVA SBE or its faculty accepts no responsibility whatsoever for the content of this report nor for any consequences of its use. The information contained herein has been compiled by students from public sources believed to be reliable, but NOVA SBE or the students make no representation that it is accurate or complete, and accept no liability whatsoever for any direct or indirect loss resulting from the use of this report or its content. The author hereby certifies that the views expressed in this report accurately reflect his/her personal opinion about the subject company and its securities. He/she has not received or been promised any direct or indirect compensation for expressing the opinions or recommendation included in this report. The author of this report may have a position, or otherwise be interested, in transactions in securities which are directly or indirectly the subject of this report. NOVA SBE may have received compensation from the subject company during the last 12 months related to its fund raising program. Nevertheless, no compensation eventually received by NOVA SBE is in any way related to or dependent on the opinions expressed in this report. The NOVA School of Business and Economics does not deal for or otherwise offers any investment or intermediation services to market counterparties, private or intermediate customers. This report is not an investment recommendation as defined by Article 12.º-A of the Código do Mercado de Valores Mobiliários. The students of NOVA School of Business and Economics are not registered with Comissão do Mercado de Valores Mobiliários as financial analysts, financial intermediaries or entities or persons offering any services of financial intermediation, to which Regulamento 3.º/2010 of CMVM would be applicable. This report may not be reproduced, distributed or published without the explicit previous consent of its author, unless when used by NOVA SBE for academic purposes only. At any time, NOVA SBE may decide to suspend this report reproduction or distribution without further notice.