April 27, 2014 - 5:03pm EST by
2014 2015
Price: 22.16 EPS $0.21 $0.25
Shares Out. (in M): 860 P/E 105.0x 88.0x
Market Cap (in $M): 3,900 P/FCF 7.0x 6.5x
Net Debt (in $M): 12,000 EBIT 700 800
TEV ($): 15,900 TEV/EBIT 23.0x 20.0x

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  • Construction
  • infrastructural asset
  • restructuring
  • YieldCo
  • Engineering and Construction
  • Potential IPO



Abengoa SA (ABG SM | ABG/P SM | ABGB) (“ABG”) is a construction and concession company focused on energy and water infrastructure.  The company’s stock presents a compelling opportunity to invest in a yieldco restructuring aimed at unlocking approximately €4bn in hidden asset value associated with ABG’s concession portfolio.  

The following analysis is from the perspective of Abengoa's Class B  shares (ABG/P SM)  as they are the most liquid. 

ABG’s operations are split between Corporate and Concession segments:


Corporate includes:

  • Engineering and Construction
    • Segment specializes in the construction of solar thermal, traditional and waste-to-energy power plants, desalination facilities, water infrastructure, biofuel facilities and high voltage transmission lines
    • €6.8bn E&C backlog, 54% of which will be realized in 2014
    • €139bn E&C pipeline with an expected 10% conversion ratio over the next 24 months
    • Approximately one half of ABG’s backlog is comprised of orders to build energy and water infrastructure assets for third parties.  The remainder is set to build concession assets which ABG owns and operates.
    • Business should generate ~€580mm in 2014 EBITDA excluding €193mm in required concession equity investments
    • Global peers trade ~8.0x EV / EBITDA
  • Industrial Production
    • Operates a number of biofuel plants in the US, Europe and Brazil
    • Business generated ~€100mm in EBITDA during 2013
    • Peers trade ~6.0x
  • €2.5bn in corporate net debt
  • Implies an equity value of €2.65bn or €3.00 per share (based on a share count of 860mm and the current Class B / Class A discount) against a stock price of €3.19 for the B shares


Concessions includes:

  • 41 assets currently in operation including concentrated solar power, Latin American transmission lines, wind farms, traditional power plants and water desalination facilities
    • Represents €2.8bn in invested equity underwritten to return 10-15%
    • Assets are contracted under 20-30 year agreements with investment grade counterparties
    • ABG expects the assets to generate €580mm in fully ramped EBITDA
    • Based on the disclosed asset ownership structure we estimated ~€410mm of this is ABG-owned EBITDA
  • ABG expects to invest an additional €1.1bn in equity thru 2016, which could add over €375mm in incremental EBITDA (€250mm in owned EBITDA)
  • Segment currently has €6.3bn in net non-recourse debt implying ~6.5x leverage on a fully ramped basis
  • We estimate the portfolio will generate over €225mm in owned cash available for distribution
  • Valuing it at book, ABG’s €4bn investment in concessions assets would be worth ~€4.60 per share
  • ABG has historically monetized these assets in one-off sales at an average price of 1.2x book value. 
  • Based on their plans to move the assets into a yieldco we expect that ABG will accelerate the monetization process and achieve higher values going forward


Abengoa Yield PLC (“ABY”)

  • In early April, ABG filed an F-1 highlighting its plan to IPO a portion of the concession portfolio through ABY
  • Based on the performance of NRG Yield (NYLD) and Pattern Energy Group (PEGI), a yieldco will provide ABG with an advantaged cost of capital to house  concession assets
  • We believe the assets’ attractive attributes will result in ABY trading inline or at a premium to public yieldco peers
    • 26-year weighted average remaining contract life
      • Peer average is approximately 17 years
    • Strong growth prospects
      • We estimated €140mm in owned EBITDA associated with the identified ROFO assets planned to be dropped down in 2015 and 2016; implying + 40% EBITDA growth
      • Over €200mm in owned EBITDA associated with ABG’s development pipeline supplying drop down inventory post 2016
    • 6.5x normalized non-recourse leverage is comparable with peers
  • Assuming ABY prices its IPO at a 7% yield, on run-rate distributions, and subsequently trades at  5 %, ABG’s stake and cash proceeds would total €1.9bn or €2.10 per share
    • A sale of the ROFO assets at a conservative 11x EBITDA could lead to an additional €625mm in proceeds or €0.70 per ABG share



  • Investors currently view ABG as an over-levered Spanish construction company with an asset intensive business model where the concession assets do not earn returns above ABG’s cost of capital
  • A successful IPO of ABY will reduce the company’s cost of capital and accelerate ABG’s shift to an asset light operating model
  • Today, ABG’s E&C and biofuel businesses account for nearly all of the company’s stock price
  • ABG’s concession assets are well-suited for a yieldco
  • Ignoring the value of ABG’s retained concession assets, the development pipeline and the upside associated with drop down accretion to ABG’s stake in ABY we believe ABY will unlock €2.80 in value implying 80% upside to ABG’s current share price
  • IPO and drop down proceeds will allow ABG to meaningfully delever its corporate balance sheet resulting in improved credit ratings and further reductions in the cost of capital
    • With €1.8bn in outstanding bonds costing ~8.6%, deleveraging and refinancing high cost debt will have a meaningful impact on corporate free cash flows
  • Post the IPO of ABY we believe the company can continue to unlock value through drop downs, accretive capital allocation, and the spin / sale of their biofuels business however at its current stock price ABG presents a compelling investment on the yieldco IPO alone


I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.


  • IPO of Abengoa Yield PLC 
  • Subsequent Drop Downs to ABY
  • Deleveraging / Credit ratings upgrade / refinancing debt at lower rates
  • Biofuels sale / spin
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    Abengoa SA (ABG SM | ABG/P SM | ABGB) (“ABG”) is a construction and concession company focused on energy and water infrastructure.  The company’s stock presents a compelling opportunity to invest in a yieldco restructuring aimed at unlocking approximately €4bn in hidden asset value associated with ABG’s concession portfolio.  

    The following analysis is from the perspective of Abengoa's Class B  shares (ABG/P SM)  as they are the most liquid. 

    ABG’s operations are split between Corporate and Concession segments:


    Corporate includes:


    Concessions includes:


    Abengoa Yield PLC (“ABY”)




    I do not hold a position of employment, directorship, or consultancy with the issuer.
    I and/or others I advise hold a material investment in the issuer's securities.


    • IPO of Abengoa Yield PLC 
    • Subsequent Drop Downs to ABY
    • Deleveraging / Credit ratings upgrade / refinancing debt at lower rates
    • Biofuels sale / spin


    Entry04/29/2014 10:57 AM
    The first of what I apologize in advance may become many accounting questions given the complexity of this beast.  I'm having some trouble just getting my basic numbers to line up.
    1. The current E&C backlog is 6796MM of which 54% should convert in 2014 so thats 3670MM Revenue. You say E&C will do 580MM in 2014 excluding the 193MM investment.  Does that mean your EBITDA adjusted for investment is 387MM or is the 580MM already net of the 193?  I think is is because using the 8x multiple on 580MM gets me to your 3.19/shr target value.  But if the 580MM is net then their E&C margin would rise to 21% from 16-17% range the last two years.  What accounts for this rise or am I missing some revenue which comes in intra-year beyond a 54% backlog conversion?
    2. I'm trying to reconcile some of the company's financial reporting.  2013 "Corporate" EBITDA was 978MM which adjusted for 140MM of arbitration award is 838MM.  But their YE earnings presentation says E&C EBITDA was 806MM and core IP EBITDA was 99MM for a total of 905MM.  What is the difference between the 978 and 905?
    3. The annual report says they did 318MM in conession EBITDA but their 2014 Financial Review slides from the investor day say they did 387MM in "Non-Recourse EBITDA".  How do I reconcile these numbers?  Are concession and non-recourse EBITDA the same thing?
    I think this is a very interesting situation where reality may well be obscured by the accounting complexity but the accounting complexity may end up defeating me as well.  Maybe its beacause they are changing things around to launch the yieldco but they don't help matters by using inconsistent internal language and classifications to explain their operations.  Many thanks for you help

    SubjectRE: RE: Questions
    Entry04/29/2014 03:33 PM
    Many Thanks.  I also realize Technology may not be in the E&C backlog so that could fill much of the EBITDA gap.

    SubjectQuarter / Big move
    Entry05/16/2014 07:39 AM
    Matt -
    Any thoughts on the quarter and the large move the last two days? 

    Entry06/14/2014 06:55 PM
    Well the yieldco seems to be a big success.  Do you have a sense of what kind of valuation metrics its trading at here?

    SubjectRE: ABY
    Entry06/18/2014 12:08 AM
    Most likely looking at implied yield based on 2015-16 distribtuons. Base case would ballpark the implied yield at a discount to NYLD, or 3.5% yield of 2016 distribution of $1.40, bull case would be ABY yield trading in-line to slight premium to NYLD. As simplistic ( or "assinine" as some have said to me) this is how the group trades currently and is how the more agressive analysts will view this out of the gate.
    While not exactly a "YieldCo" per se in the sense that NYLD, ABY, and Terraforma will be labeled as, one can look at the recent WMB/ACMP acquisiton/merger as an example of how quickly a stock can re-rate based on dividend growth forecasts & improved distribution coverage. WMB was trading at a 100-150 bps discount on a divdend yield basis to OKE/SE, and with this deal, the stock is rerating towards the mean of the group. One can say this is unsustainable, and it's tough to argue that, but until capital markets freeze up, or until investors stop chasing yield, this group will likely continue to be valued as such.

    SubjectRE: RE: ABY
    Entry06/18/2014 09:06 AM
    elehunter -
    How are you getting to $1.40 for 2016 distribution? 
    Just pulling from the F-1 
    I see CAD for 6/30/16 of $150 million assuming 90% payout and 80 million shares = $1.69
    Also I heard that they guided towards $75 mln in FCF from the 2015 / 2016 ROFO assets, but would need to make some assumptions around what they are paying for them. 

    SubjectRE: RE: RE: RE: ABY
    Entry06/18/2014 04:53 PM
    Thanks for clarifying. Much appreciated. 

    SubjectRE: recent sell-off in October 10th, 2014
    Entry10/10/2014 11:51 PM
    My first thought is it will be nice when I am not coming close to dominating the VIC message board with posts about my stocks that are down 25-50%!  It's more fun when I am right.
    I basically agree with your thoughts.  Concerns about economic growth, biofuels pressure tied to commodity price moves, and the two headlines (Palen and EC) seem to be hitting the stock.  Stocks that have done well and are popular hedge fund names also seem to be getting hurt, especially but not only in Europe.  So on that front, I don't have a ton to add.
    I would point out that ABY has priced since our post.  That seems kind of important to me, since ABY owns the exact same assets and kind of assets that ABG SM owns, and will drop down into ABY.  ABY has traded off a little in recent weeks, but still trades at a valuation that will allow for very material value creation for both ABG and ABY in those dropdown transactions.  I have invested in ideas like this many times (ETE, LNG, WMB), where the parent controls an LP (or in this case, Yieldco), and the LP valuation is for a time at a large premium to the Parent who owns the same assets and kind of assets that the LP does.  If the LP valuation does not fall, the Parent valuation has to increase, if drop downs occur: It is just math.  When we stress ABY to put it at an 8% dividend yield (which seems high for a portfolio of assets with immaterial cashflow risk for 20+ years), and assume ABG does drop downs at 9% yields, we see value for ABG equal to close to twice last sale.  That assumes the E&C and biofuels business hit their numbers.  You can create your own stress cases.  But unless the capital markets close and ABY stock price really plummets, even in the case of a recession that hits E&C cashflow, we see a lot of upside here, and a real margin of safety.  Hope that helps some.

    SubjectRE: RE: recent sell-off in October 10th, 2014
    Entry10/11/2014 08:16 PM
    Thanks Matt - I agree with your stress test and your estimate of the margin of safety.  

    SubjectRe: recent sell-off part 2
    Entry11/05/2014 03:48 PM

    Hi.  I think the stock is down on concerns relating to: (1) ABY not closing its announced bond deal, which it aimed to use to fund the first dropdown, raising questions about whether that dropdown will close; (2) ABY shares have been weak, which impacts the price ABY can get for its dropdowns going forward, even if this deal closes; (3) ABG announcing it is doing Palen alone, raising questions about how ABG could fund such a large project on its own without dilution; and (4) ABG not announcing major bookings in Q3, raising concerns about bookings in Q3 and financial performance in general.  Let me know if I left anything off that is material.

    We expect a debt financing to be completed reasonably soon, and think ABY is shopping for the best price.  Debt deals done in line with ABGSM credit costs, either bond or bank, make the dropdown nicely accretive still to ABY.  ABY has cash on hand and no corporate debt, so it is logical that having just IPO'd, ABY would seek to use leverage to fund the first drop down.  Regardless, in the future, most or all dropdowns will be for ABY equity, and will be priced at accretive levels to ABY's dividend.  ABY's valuation is the major risk for ABG's investment case.  But at current ABG prices, ABG values its E&C business at approximately 5x 2014 EBITDA, and values its concessions assets and their 4B 2016 book value at zero.  Because of this, any dropdown transaction at any price will be value creating to ABG.  We expect a fixed income financing to be done at a reasonable price, and the dropdown to close.  When it does, we expect ABY valuation to recover, or at a minimum, to be sustainable at a level that allows for material valuation from ABG through incremental dropdowns.

    Bookings in the E&C business are lumpy, and we don't expect Q3 to be a strong bookings quarter.  But AGB did just announce an award today, and has a large series of bids out in the coming months.  ABG's historical book to bill varies widely with the lumpiness of the business.  But the revenue and cashflow from E&C is much less variable.  ABG 3 months just raised EBITDA and cashflow guidance, and we would be surprised by a material miss in the quarter to be reported next week.  We would also again stress the valuation discount on the stock seems to more than factor this in.  We will all know more about Q3 next week.  But we don't think any one quarter is material enough to value to justify this share price.

    Palen either will be recast to be a much smaller project, or ABG will find partners for it.  It is illogical to think they are going to break the bank or balance sheet to participate in this project; they stated that the project needs to be re-designed for it to move forward; and it is not in their backlog.  We don't think it is a meaningful part of the investment case in any event.

    We have added to our investment in ABG in recent weeks, and think the story is broadly unchanged, with a large margin of safety, assuming you think ABY valuation is sustainable.  Hope some of that helps.


    SubjectRe: Going to zero?
    Entry11/14/2014 09:15 AM

    Biffins -


    I don't see how it would have triggered the covenants... Looking at the F-1 they filed before listing on NASDAQ they state:

    "Covenant net corporate debt consists of Gross Corporate Debt, less recourse and non-recourse cash and cash equivalents, and recourse and non-recourse short-term financial investments..." (page 25)


    Looking at latest filing I would get.....

    corpoate financing 4,891

    s/t corporate financing 1496

    Gross Corporate Debt 6387

    Covenant corporate debt 1447 or less than 2x Net debt to corporate EBITDA


    What the company seems to have been doing is referring to its short term bridge financing as non-recourse, because it is on their concession assets. If you look through the F-1 you can see how debt moves from recourse to non-recourse through the years and seems to have been steadily building recourse debt on solar assets presumably as they been starting up a bunch of projects. 

    I think operationally managment looks at that as "non-recourse" because its tied to the concession and they have the expectation that long-term project financing will replace their bridge. 

    I think management put themselves in a bad position with poor use of language, instead of saying concession debt and corporate debt, using recourse and non-recourse. However, looking at their convenant language as described in the F-1, I dont see how they are anywhere near a breach... 

    Furthermore, this is not like this is not VERY clear in their filings. I dont think they were trying to play games. 

    Very curious of any one elses thoughts. They just re-financed everything for 2015, but curious how this goes BK from here assuming not covenant breach.. 



    SubjectRe: Re: Re: Going to zero?
    Entry11/14/2014 09:51 AM

    Unless someone can explain to me how this thing goes imminently BK

    After reading Reuter's article my only concern was "oh sh*t maybe this will breach their covenants" but it seems very clear from the F-1 that is not the case

    My next conern was short-term liquidity but thats locked up for 14+ months

    Then I was thinking that if ABY is impaired whats the catalyst for value creation? Even at these prices ABY drop-downs are very attractive. I guess I wonder if they are banned from the capital markets? 

    Ultimatley if they can drop down with ABY at these levels they will generate a ton of cash. The "bridge financing" will become project financing and non-recourse as the projects mature.

    The backlog is in good shape so there business will not fall off a cliff in reaction to these events, but I am sure it doesn't help them win bids.

    My reading is that this is a big semantic f'up. The short-term bridge financing is recourse. Its just on the concession and will eventually be replaced with project financing. Just call it concession debt.

    SubjectRe: Re: Re: Re: Re: Going to zero?
    Entry11/14/2014 11:10 AM

    According to slide 19 of latest presentation, I believe those have been earmarked for repayment 

    Furthermore, re-reading the last F-20 the covenants are based on consolidated EBITDA not corporate EBITDA which would put them further in compliance


    SubjectRe: Re: Re: Re: Re: Re: Going to zero?
    Entry11/14/2014 01:43 PM


    I see this mostly as communication issue not an accounting issue but as I keep going through this I am a little more confused and so I wanted to lay out my thoughts. Hopefully we can get some back and forth


    For reference:




    Press release this morning:


    This green bond is guaranteed on a senior basis by Abengoa SA and certain of its subsidiaries, just like all the existing high yield bonds issued out of Abengoa Finance SA. The green bonds are effectively pari-passu with existing Abengoa S.A. bonds. The guarantees are outstanding during the whole life of the green bond. However, the green bond has been accounted for as “non-recourse debt in process” in its September 30, 2014 balance sheet because it is intended to bridge the long term non-recourse financing in eligible green projects, consistent with the treatment of bridge loans for non-recourse projects. The cash cannot be used for any other corporate purposes. The Company has 1.592 million euros of bridge financing accounted for under this category as of September 30, 2014


    My reading of the financials was that the corporate debt attached to the concession assets was the bridge financing. When I re-read the press release, I start wondering if the bridge financing has always been accounted for as non-recourse financing. However, If I sum up all of their corporate debt taken from their slides, I get approx. the amount reported for L/T corporate debt leaving S/T corporate debt of 1496 which is approx. equal to the amount of reported bridge financing. It would seem in this scenario that the bridge financing is being accounted for as corporate debt. This amount of bridge financing is also approximately the amount of corporate debt on concession assets (page 27)


    If this is not the case, I am wondering --- what is the un-accounted for 1.5 billion of corporate debt? And then is corporate debt really significantly higher as some of the non-recourse should be re-classified as corporate. If this is the case then they have not been in-compliance with their covenants for a VERY long time. I find this hard to believe for the reasons mentioned above. For all these reasons, I feel like there is a bit of communication problem happening, but I am also a little confused myself and would like to hear anyone’s thoughts. 


    Entry11/25/2014 03:20 PM

    It's been a while since we commented here.  I apologize, but wanted a firmer understanding of the facts before doing so. 

    I dont really agree with your characterization of what happened.  Yes, the greenfield bond's being recourse was disclosed pretty clearly.  However, the new disclosure included another 600mm of financing that is recourse to the company; that was assumed in 2014; and that had been presented as non recourse.  Further, it also included that 1B of cash is required to backstop conforming lines that ABG uses to stretch out its payables.  This 1B cash is not free capital, rather it is required to support the 3B of payables that ABG has on conforming lines.  This was not disclosed anywhere previously.  Finally, the growth in the conforming lines over the past 9 months of 2014, from 350mm to 1B, had not been disclosed previously.  In addition, Moody's does not seem to have been aware of the 600mm increased recourse financing in 2014, and their release affirming ABG's rating contained entirely new metrics--which the company has committed to--supporting the idea that this kind of financing will not expand at the same rate in the future. 

    In a sense, all that has happened to the stock is the markets have taken out the 1B in cash that was offset to gross debt previously, plus raised the discount rate as you mention to reflect the higher risk factor of having 4x net debt, not 2x, which is the recourse leverage ratio that had been presented before (and this 2x treated greenfield debt as recourse). 

    There is another concern.  In light of the increase in recourse debt being used to drive concessions assets, it is reasonable to question whether the previous work we did to estimate E&C EBITDA is analytically correct.  We had been assuming the concessions projects were non recourse financed with debt, and ABG's equity was offset by E&C margin they earned in building the projects.  If they did not invest any more equity than the margin earned, then an analysis that valued E&C EBITDA by subtracting the ABG equity invested in concessions from E&C EBITDA and separately valued each concession asset on an asset value basis could construct a fair sum of the parts value.  But if ABG uses its recourse balance sheet to develop its concessions assets past its simple equity investment, then this kind of analysis risks overstating the true sustainable cashflow of its E&C business. 

    We also have spent a lot of time with management recently.  They understand the balance sheet, yes.  But they did consciously obfuscate its leverage previously.  They did this by not disclosing the claim on its cash, and not disclosing its rapid growth in recourse debt, as well as by not filing consolidated numbers.  This does raise the question of what else they may be obfuscating about.  I am not saying that they are doing so.  I don't know if they are.  But it is a reasonable question. 

    We agree, even in light of the above, that the sell off seems overdone, and the asset value here is likely far higher than the share price, assuming no new information about the reporting.  The risks have gone up for various reasons however clearly.  Perhaps life is too short for investing with people that mislead, if not explicitly lie.  We had thought that we had diligenced this investment thoroughly.  And we are not sure that the increased recourse debt and burdened cash disclosures were discoverable previously.  But we nonetheless apologize for the work here. 

    SubjectAnyone still following this?
    Entry08/03/2015 08:08 AM

    Thoughts on situation?  Thanks in advance

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