Mota-Engil Construction

BPI EQUITY RESEARCH Mota-Engil Construction

The African Dawn Neutral E E (Price Target raised from 3.30 to 5.00; Neutral Recommendation maintained) High-Risk 4 Listing the African unit: Mota Engil (ME) announced the intention to list ME Africa - MEA (64% group EBITDA13F) in an European market and increase its 23rd December 2013 capital to boost the fire power to tackle the huge opportunities in the African continent. As part of the operation, ME shareholders should receive shares equivalent Portugal to 20% of MEA pre k increase. The company also announced the intention to sell its treasury shares (5.4%) to reinforce its capital structure and, in our view, to raise funds for the EGF privatization (Portuguese public waste company). Mota-Engil vs. PSI20 vs. MSCI Small Cap Index 4 YE14 Price Target increased to E 5.00/sh (+50%, +€1.7/sh) driven by MEA (+ E 2.3/ 711 sh) after upgrading estimates and changing our valuation methodology to DCF NF F (6.7x EBITDA14 ) to better reflect the future prospects of the unit. We were 611 previously valuing it through an avg. 4.2x EV/EBITDA14F multiple (building unit) that fails to reflect the current context of MEA vs. South-African listed 511 peers. Maintaining the previous method would have added only E 0.5/sh to the SoP, resulting in just 1% upgrade (vs.50%) as we are also downgrading Ascendi 411 (-€0.7/sh). If the IPO goes ahead, added visibility could drive another re-rating. NTDJTD The premium that “African” sectors trade vs. European counterparts points to 311 an EBITDA multiple range for the construction sector of between 6.8x-9.0x 211 (avg. 7.5x vs. 6.7x in our DCF), valuing MEA at E 1.3bn - E 1.7bn (EV) and ME QTJ31 E E fair value (w/10% disc.) at 5.0 - 6.8/sh. 1 Efd-22 Bvh-23 Bqs-24 Efd-24 4 Keeping a Neutral recommendation as our valuation upgrade was preceded by a strong stock rally. Earnings delivery should be strong (30% NP CAGR in 2013- Source: Bloomberg. 16F) but leverage is still high (3.2x ND/EBITDA13F inc. factoring&leasing and 37% of Debt to be refinanced in the next 2 years). Execution, construction cycle and country related risks are significant in this story, but ME is also an experienced contractor and a good vehicle to play African growth.

Stock data Price (19th Dec.): 4.37 Price Target: 5.00 No. of shares (mn): 204.6 Market Cap (E mn): 893 Reuters/Bloomberg: MOTA.LS/EGL PL Free-Float: 27% NET DEBT/EBITDA14F: 2.2 ROE13: 11% EPS Growth ('12-'15F): 31% Avg. Daily Turnover [E '000]: 1 673 Major Shareholders: Mota Family (67.78%); Treasury shares (5.42%)

Estimates 2011 2012 2013F 2014F 2015F 2016F EPS Adj. (E) 0.16 0.20 0.27 0.32 0.44 0.58 P/E adj. 26.7 21.9 16.4 13.7 9.8 7.5 Historical Recommendation Dividend Yield 10.6% 7.0% 2.5% 2.5% 2.5% 2.5% EV/EBITDA 7.1 7.3 5.7 5.3 4.7 4.3 Date Recommendation FCF yield (1) 7.1% 6.8% 4.7% 7.8% 10.0% 12.2% 18-Sep-12 Neutral (1) maintenance capex only. Source: BPI Equity Research.

Analysts Available on our website: Bruno Silva, CFA Filipe Leite, CFA www.bpiequity.bpi.pt, BPI Online, [email protected] [email protected] Phone 351 22 607 4375 Phone 351 22 607 3136 and Bloomberg at NH BPD Equity Research 4 Mota-Engil 4 December 2013

BPI vs. Consensus Stock Momentum

Company: Mota-Engil SGPS SA Sector: DJES Cns&Mat Price Performance Forward P/E and EV/EBITDA 35 Valuation monitor 1 Y 30 Forward P/E Relative Valuation 2013 2014 2015 25

EV/EBITDA 3 M 20 BPI 5.7 5.3 4.7 Consensus 5.8 n.s. n.s. 15

Sector 8.6 7.7 6.9 YTD 10 P/E 5 EV/EBITDA BPI 16.4 13.7 9.8 0% 100% 200% 300% 0 Consensus 15.1 11.8 9.1 DJES Cns&M at Feb-04 Jun-07 Sep-10 Dec-13 M ota Engil SGPS SA Sector 18.5 16.4 13.1 E PBV Market Price Rating ( ) Market Recommendations 5.0 BPI 2.5 2.2 1.9 Consensus n.s. n.s. n.s.

Sector 1.9 1.8 1.6 3.5 Price Target Dividend yield Consensus BPI 2.5% 2.5% 2.5% Consensus 2.5% 2.5% 3.7% 2.0 Price Sector 3.1% 3.3% 3.5%

0.5 Nov-12 Apr-13 Aug-13 Dec-13 P&L and B\S monitor Fair Value Comparison (E) CAGR 2012-15

8.0 BPI estimates/Consensus 2013 2014 2015 Net Profit Revenues -2% -3% -1% 6.08 6.0 5.00 EBITDA 5% 4% 6% EBIT 3.63 3.30 EBIT 0% -3% -1% 4.0 Net Profit -9% -13% -4% EBITDA

Profitability monitor 2.0 EBITDA Margin Revenues BPI 15.6% 15.6% 15.4% 0.0 Consensus 14.9% 16.3% 18.0% P/E PBVConsensus BPI 0% 10% 20% 30% EBIT margin Current M arket Price BPI Consensus BPI 9.9% 9.9% 9.8% E E Consensus 10.0% 11.1% 12.2% EBITDA Consensus ( mn) EPS Consensus ( ) Net Profit margin 450 0.60 BPI 2.3% 2.6% 3.2% FY15 0.50 Consensus 2.6% 3.2% 4.1% 400 FY15 Key leverage ratios FY14 0.40 Net Debt/EV 350 BPI 44% 42% 39% 0.30 FY14

Consensus 56% 54% 52% 300 0.20 Net Debt/EBITDA FY13 FY13

BPI 2.5 2.2 1.9 250 0.10 Consensus 3.3 2.8 2.3 Nov-12 Apr-13 Aug-13 Dec-13 Nov-12 Apr-13 Aug-13 Dec-13

Source: Factset, Bloomberg and BPI Equity Research.

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Mota-Engil at a Glance

2013F EBITDA mg by business EBITDA weight (Africa 61% of FY15F EBITDA) BgsjdboDpotu/ 64% BgsjdboF&T 54/1% 54% 32% BgsjdboDpotu/ 33/1% Bnfsjdb 22% 26% FvspqfboF&T 3126G FvspqfboF&T 29/3% 2:% 3123 BgsjdboF&T 8% Bnfsjdb 9/9% 5% 6% FvspqfboDpotu/ 6/:% FvspqfboDpotu/ 34%

1% 31% 51% 71% 1% 31% 51% 71%

Source: BPI Equity Research. Source: ME and BPI Equity Research.

Debt maturity profile at 9M13 (€ mn) Net debt as of 9M13 (€ mn)

264

768 1231 967 362 344 543 199 158 117 105 Gross Cash Gross Net Debt Leasing & Net Debt 26 Debt < 1 Debt > 1 (ex Fact (incl 1 Year 2 Years 3 Years 4 Years 5 Years >5 Years Year Year Leasing & Leasing & Fact) Fact) Source: ME. Source: ME.

Construction Backlog evolution (E bn) 9M13 Construction backlog (E 3.7bn)

4000 80% 75% 3000 70% 2000 65% 60% 1000 55% 0 50% GZ23 ZF21 ZF22 2R21 2R22 2R24 2R23 2I21 2I22 2I24 2I23 :N21 :N22 :N24 :N23 Orderbook ⁄ mn % of international orderbook Source: ME. Source: ME.

Europe FY13F Sales African FY13F Sales

Source: BPI Equity Research. Source: BPI Equity Research.

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INVESTMENT CASE

STRONG EARNINGS DELIVERY AND ANNOUNCEMENT OF IPO OF MOTA ENGIL AFRICA

Since our last update (10th Sep 13) two main evens must be highlighted: (1) the ME - 3Q Results strong Q3 earnings delivery and more importantly (2) the announcement of the Sales (E mn) 3Q13 3Q12 yoy IPO of MEA. Europe 283 377 -25% Construction 203 294 -31% Q3 earnings brought reassuring message on sustainability of African margins above E&S 80 83 -4% 20% and better than expected performance in Portugal Africa 273 198 38% Regarding results in Q3 ME presented a 35% increase in EBITDA driven mainly by America 114 86 32% the international units (Africa +46% and Latam +59%) and a good (and unexpected) Holding -47 -6 n.s. strong delivery in European market where 3Q EBITDA increased by 16% yoy (46% Total 623 655 -5% or E 10mn above our quarterly estimate) helped by a top performance in Construction sector margins in Portugal. The Net debt of the company was reduced EBITDA (E mn) 3Q13 3Q12 yoy by 5% or E 53mn qoq with a good WK recovery (that lead us to revise upwards our Europe 33 29 16% estimate for YE WK evolution, +E 0.12/sh or +3% in our FV). The Leasing and Construction 18 14 29% Factoring was also reduced by E 17mn qoq (-6%) putting the total Net Debt E&S 15 15 3% reduction in the quarter (incl. Leasing and Factoring) at E 70mn (-5%) qoq. Africa 60 41 46% Another positive note from the conference call was above-expected guidance given America 10 6 59% by the management not only for the international markets but also for the domestic Holding 1 1 15% construction market where the company is pointing to a flat top line performance Total 104 77 35% during 2014. In the beginning of October (accounted in 9M numbers), the company also announced that sold a building in Lisbon (the Báltico Center Building in the Source: ME and BPI Equity Research. region of "Parque das Nações") for E 43mn, constituting the largest real estate deal made in Portugal since 2009.

African order intake "dealing" with USD 5bn of potential awards Moreover, in the end of September the CEO of ME announced, in an interview, that ME would post a very solid set of results for the second half of 2013 (already confirmed in Q3) with Africa and Latin America accounting for more than 60% of revenues (BPIF: 62%). The upbeat message went on as the company is also bidding for contracts worth more than USD 5bn in Africa with new markets including Zambia and Ghana.

Confidence boost now reflected in our estimates We upgraded our domestic market estimates but still remain on the conservative side with a 4% top line contraction in domestic construction division. For the African business, we have simultaneously cut our point estimate for FY13 but followed the upbeat message of the company in what regards the sustainability of the current margins, considering the visibility of the profitability of the current orderbook and sentiment in the region. In consolidated terms, we are upgrading EBITDA in 2014-15 by an average 5% and Net debt being cut by a similar range. We estimate topline and EBITDA to expand at 10% CAGR13-16 and bottom line at 30% in the same period. Net cashflow should also follow the trend with ME amassing E 208mn debt reduction in 2014-16 despite the expected operating growth and consequent investment required in this stage. We are keeping a fixed shareholder remuneration in line with previous years at E 0.11/sh with an implied 2.5% DY.

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RAISING OUR TARGET BY 50% MOSTLY ON MEA

Material change to valuation method of MEA: +E 2.3/share vs. +E 0.5/sh keeping previous method We have produced a material change to our valuation methodology of the African business (MEA). To start with, the upgrade in estimates of the African business would not be fully reflected in our valuation if we had kept the previous method as it used a multiple on FY14 EBITDA. For ME Angola we previously used the deal multiple implicit in the sale of 49% of the Angolan unit in 2011 which is static and thus would not reflect the changes in the operating context namely new contracts and improved growth estimates since the deal was done. In addition, that multiple was probably discounting tax advantages given to ME in Angola that we can now perceive from the earnings reported by the area in the last couple of years and lastly, the deal perimeter of the unit sold was not capturing the full business generated in Angola such as the services unit and other revenues from property and services provided by the parent company. For MEA ex-Angola, we were applying a construction peer multiple of South African listed construction companies adjusted for the ST growth differential between consensus growth estimates for the peer group vs. our estimates for MEA, consequently partly foregoing the enhanced growth in the medium and long term as well as the impact of the superior return on capital employed.

The upgrade of the estimates for MEA and the update of the multiple for MEA ex- Angola (would now be 5.0x vs. 4.4x before) would have resulted in a 14.1% increase of MEA unit EV equivalent to 14.3% at the equity level all else constant, E0.5/ share.

Enhanced prospects and visibility, limited comparability of peer group and IPO plan consequences among others justifying changing the method The enhanced prospects of MEA, the recognition of the limitations of using a static deal multiple to value Angola and more importantly the increasing deficit of comparability of South African builders vs. MEA performance and prospects as well as geographic and business focus urged a change to our valuation method. In addition, the announcement of the possible IPO of MEA has the double effect of increasing visibility of the unit (higher expectations on the valuation benchmark and more information to be released with the operation) and a consequent reduction of the discount likely assigned now by the market to the subsidiary.

DCF with implicit 6.7x multiple vs. "new" peer group average of 7.5x (range 6.8-9.0x) As such, we have implemented a DCF to value MEA and have also redefined the peer group by collecting data related to the Africa vs. Europe premium/discount observed in relevant sectors in order to apply it to an European construction peer group multiple. With that, we are more able to get an idea of the premium that African companies with a more comparable geographic reach with MEA's should have vs. the European counterparts. By using EV/EBITDA14F and EV/EBIT14F we observed an average premium of Africa vs. Europe (average of retail, beverages, cement and telcos) of 17% and 11%. With all the shortcoming that these multiples still have, we reach very different conclusions about MEA potential valuation. Focusing on EV/EBITDA, the average of the peer group would point to 7.5x (vs the 3.9x and 5.0x multiple we would be using under the previous method). Our DCF of MEA points to a valuation of the unit of E 1.25bn vs E 0.77bn before (+63% at EV level) with an implicit EV/EBITDA14F multiple of 6.7x, below the 7.5x average of

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the "redefined" peer group (6.8-9.0x range). This implies, all else constant, adding E 2.3/share to our valuation or +E 1.8/sh vs. what we would get under the previous method with our new estimates.

Cutting concessions valuation: -E 0.7/share On the negative side, we have cut the valuation of the motorway concession business by the equivalent to E 0.73/share. We were previously assuming the reported BV of Ascendi (the holding 60% controlled by ME that groups all concessions) and adding the NPV of the individual concessions as well as ME's shareholders loans. Now we are assuming the investment carried out by shareholders subtracted by the negative NPV of the availability concessions in Portugal estimated at E 47mn for ME's stake while adjusting Lusoponte and foreign concession's reported equity investment by the impact of the cost of capital evolution since inception. We have changed the method due to the volatility shown in the BV of Ascendi caused by the swaps mark-to-market and consequent limited use of that metric as a good departing point for our valuation.

Target up 50% to E 5.00/share The above changes together with other relatively minor adjustments, our YE14 Price Target for ME has climbed by 50% to E 5.00 per share including a 10% small cap discount.

Still a risky sector and a risky investment case… The negative points of the investment case remain. Subdued performance of Central European units, a high level of debt particularly considering debt from subsidiaries consolidated through equity (Ascendi in particular) despite their non-recourse nature, the cyclical nature of the construction sector and execution risks and the perceived higher risk of the key markets where ME is more active in terms of FX (even if a lot of contracts are done in strong currencies) and political risk in areas with traditional instability (Latam and Africa).

High level of sensitivity to valuation inputs… High risk rating As such, although we believe the momentum is very positive for the company and the stock, we advise investors to carefully consider the above risks and particularly to be comfortable with the valuation sensitivity to key inputs of the valuation, namely forecasts (volumes and margins), terminal values used in the valuation as well as the paramount impact of discount rates. The country risk premium has been an area of debate. We are using for Angola 6.7% and for the remaining African business 6.5%, which in fact is more conservative than the 4.0%-5.0% suggested by USD denominated sovereign yields in comparable African countries (Angola does not have publicly trading USD or Eur sovereign bonds). Despite that evidence, we have applied a 150bps additional premium to reflect the risk of political instability in Angola and other African countries and also recognized the yield differential to German bunds (our valuation is euro denominated). Finally, for Latam we assume an average spread of 1.6% (in euros) and 2.35% for Portugal. If we add 100bps to the country risk premium of Portugal, Latam and Africa to value the construction units, our valuation would drop to E 4.2/share vs E 5.0/sh, which is definitely considerable. In this case, we would be using a WACC in euros for Africa of 14.4% (vs 13.6% in base case) and 10.6% for the area Portugal+Latam (vs 9.8%).

The decision to go ahead or not with the IPO (including a partial spin-off of MEA and a capital increase) is also an important risk. The decision and further details

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will be known on the 27th December when ME AGM should meet to vote it. The ME Share price evolution (E) prospectus of the IPO, if it goes through, should bring more visibility into MEA potential growth and profitability and consequently be as ource of further valuation 6.0 3Q13 Results and announcement of M EA IPO upgrades. On the flip side, the "decision" about MEA's capital structure will 5.0 influence valuation, capital increase proceeds and ME parent leverage and liquidity 2Q13 levels. The plan also includes an authorization for management to sell treasury 4.0 Results stock of 5.4%, which could be a source of overhang risk. 1Q13 3.0 Results

Keeping a Neutral recommendation 2.0 We are keeping a Neutral recommendation on Mota Engil as our valuation upgrade 1.0 Kendal II reduce its stake from was preceded by a strong performance of the stock reflecting lower country risk in 4.6% to 1% Portugal, upgrade of market growth prospects reflected in consensus estimates 0.0 Jan-13 Apr-13 Aug-13 Dec-13 particularly since early 2013 and a general appetite for equity rsik. The IPO plan of the African unit played an important role over the last weeks justifying a second Stock Price BPI PT stage in the rally. Earnings delivery should be strong (30% NP CAGR in 2013-16) Source: Bloomberg and BPI Equity but leverage is still significant with a consolidated ND/EBITDA14 and 15 at 2.5x Research. and 2.2x in our base case without considering potential proceeds from the MEA operation. If we also include factoring a leases, the ratio would increase to 3.2x and 3.0x respectively. If we also add the proportional debt from Ascendi and Indaqua, the ratio would climb to 4.2x in FY13.

LISTING THE AFRICAN UNIT

Simultaneous spin-off, IPO and capital increase of MEA in 2Q14 - roadshow in Feb. Mota Engil (ME) announced with the presentation of 3Q13 results (21 Nov) the intention MEA - Events calendar to propose to the 27th December shareholders meeting: (1) a partial spin-off of Mota AGM 27 Dec13 Engil Africa (MEA), whereby the current shareholders would be assigned shares Roadshow Feb13 equivalent to 20% of MEA as it is. (2) the floating of MEA in an European market, IPO 2Q14 probably the UK and ME would keep a controlling stake above 50%; and (3) a capital Source: BPI Equity Research. increase at MEA level reserved to ME shareholders.

The latter has been raising questions from investors. It is our understanding that the MEA business scope possible decision to reserve the capital increase to shareholders is only relevant to the extent of the undervaluation (or overreaction) of MEA embedded in ME stock price. What we mean by that is that if the current ME price is under or overvaluing implicitly MEA, then an investor would be, all else constant, rationally deciding to go long or short ME shares to capture the upside or downside to be unveiled once the market explicitly values MEA in the floating process. The operation will likely use a bookbuilding process where potential investors will place their bids. Current shareholders of ME have the option to exercise the call, ie, subscribe the capital increase at the set price or give up the rights and let those who bid to subscribe the new shares on their place. In other words, the bookbuilding should theoretically be a competitive process to price MEA at fair market value leaving it in a range of indifference for current ME shareholders and other investors regarding MEA. So, the relevance today is whether ME stock price already reflects that fair value of MEA. Source: BPI Equity Research.

Assuming the current free-float of ME holding (c.27%) as a minimum to provide the newco with a sufficient liquidity to sustain market interest, ME could end up with a stake between 51% and 70%-73%. The newco will be listed in an European market, most likely London. The IPO may take place in 2Q14 preceded by a marketing roadshow at the beginning of 2014, perhaps in February. With this move ME intends to both

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provide MEA with fire power to face the opportunities ahead and capture the interest MEA backlog evolution (E bn) shown by the investment community in the company's African unit. The board is also 2/9 proposing to sell the group's 5.4% treasury stock, in order to further reinforce the balance sheet with cE 48mn proceeds at the current stock price level. 2/8

2/7 MEA the growth engine of ME - EBITDA CAGR12-15F of 20% MEA is a focused Sub- Saharan Africa region player, leveraging on: (1) The huge 2/6 potential of the region, recipient of the largest slice of the Programme for Infrastructure Development (PIDA) in Africa, expected to invest USD 68bn by 2/5 2020; (2) ME's unique footprint in Africa, with a long-standing presence in 2/4 Portuguese-speaking countries - Angola, Mozambique and Cape Verde. ME holds 100% of MEA, which in turn holds 51% of ME's Construction operations in Angola 2/3 (57% of FY13F revenues of MEA), 100% of the remaining construction operations ZF22 ZF23 2R23 2R24 2I23 2I24 :N23 in the African continent (38%) and 100% of the Environment & Waste unit, mostly :N24

waste treatment in Angola (5%). Source: Mota-Engil.

MEA recorded FY12 revenues of E 729mn, up 19% yoy (+36% in 9M13) and represents 42% of total 9M group sales with a backlog of E 1.5bn (more than 25 months of sales). EBITDA of E 163mn in 9M already represents 61% of total group EBITDA after jumping by an impressive 63% yoy (E 137mn in FY12).

Mota Engil Africa - Estimates breakdown CAGR €Sales ( E mn) FY11 FY12 yoy FY13F yoy FY14F yoy FY15F yoy 12-15 Construction 575 699 22% 949 36% 1 047 10% 1 171 12% 19% Angola 415 495 19% 569 15% 615 8% 649 6% 10% Africa ex Angola 160 204 28% 380 86% 431 14% 521 21% 37% E&S 32 30 -6% 54 80% 66 22% 76 15% 36% Total 607 729 20% 1003 38% 1113 11% 1 246 12% 20% Note: BPI estimates for the historical breakdown of Africa construction revenues.

EBITDA CAGR E mn FY11 FY12 yoy FY13F yoy FY14F yoy FY15F yoy 12-15 Construction 108 124 15% 209 69% 220 5% 234 7% 24% Angola 78 88 12% 125 43% 129 3% 130 1% 14% Africa ex Angola 30 36 21% 84 131% 91 8% 104 15% 42% E&S 19 13 -34% 23 84% 28 22% 33 15% 37% Total 127 137 8% 232 70% 248 7% 267 7% 25% Note: BPI estimates for the historical breakdown of Africa construction EBITDA.

EBITDA mg

% FY11 FY12 yoy FY13F yoy FY14F yoy FY15F yoy Construction 19% 18% -1.0pp 22% 4.3pp 21% -1.0pp 20% -1.0pp Angola 19% 18% -1.0pp 22% 4.3pp 21% -1.0pp 20% -1.0pp Africa ex Angola 19% 18% -1.0pp 22% 4.3pp 21% -1.0pp 20% -1.0pp E&S 59% 42% -17.4pp 43% 1.0pp 43% 0.0pp 43% 0.0pp Total 21% 19% -2.2pp 23% 4.4pp 22% -0.8pp 21% -0.9pp Source: BPI Equity Research.

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Everyone is intimate to the fact that Africa has been one of the fastest growing regions in the world. According to the PIDA, the African population is estimated to reach approximately 1770mn in 2040, which represents an increase of 71% from 2010. Departing from 2010, GDP/per capita is expected to increase by 48% until 2020, 139% until 2030 and 260% until 2040 which reflect a total value of around USD 4709 in 2020, USD 7636 in 2030 and USD 11490 in 2040.

Forecast for Africa

2010 2020 2030 2040 Population (mn) 1 033 1 276 1 524 1 770 ME: Unique path in Africa Urban Population (mn) 413 569 761 986 GDP (2005 PPP $ bn) 3 300 6 010 11 639 20 334 GDP/per capita 3 190 4 709 7 636 11 490 Source: Mota-Engil.

The priority action plan (included in the PIDA) comprises 51 projects to be completed by 2020, divided into four different sectors, namely transport, energy, TWR (Trans-boundary Water Resources) and ICT (Information and communications technology) as well as six different regions including Continental, North Africa, West Africa, Central Africa, Southern Africa and East Africa. These 51 projects require an initial investment of around USD 67.9bn (to be made until 2020) and ME, as one of the main construction players on the continent, is preparing itself Source: Mota Engil. (with the IPO) to grab its share of the pie, leveraging on its unique footprint and proven track record.

MEA advantages are known but also underestimated. Africa is a complex competitive Africa - Priority action plan - environment gathering a vast and diverse collection of risks. ME has been in Angola By Sector

since 1946 and has a JV in Angola where also participates Sonangol, the national Investment oil champion. The track record spreads over the sub-Saharan region with several Projects (USD bn) high-profile projects delivered to African public clients and multinationals in Transport 24 25.4 different sectors such as mining (Vale, Paladin, Xstrada/Glencore, Rio Tinto) and Energy 15 40.3 other infrastructures related sectors. If local connections and experience are valuable, TWR 9 1.7 then ME and its subsidiary MEA are probably a good way to gain exposure to the ICT 3 0.5 Total 51 67.9 infrastructure growth of the region. The somewhat constrained financial chest limits in the same proportion the capacity to go after every opportunity, but on the Source:Mota-Engil. other hand, keeps the company focused on quality projects with higher margins.

Africa - Priority action plan - By Region

Investment Projects (USD bn) Continental 7 3 North Africa 2 1.3 West Africa 16 6.2 Central Africa 9 21.5 Aouthern Africa 6 12.6 East Africa 11 23.3 Total 51 67.9 Source:Mota-Engil.

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VALUATION OF MEA

Valuing growth in Africa is challenging given the typical volatility of the investment environment and narrow visibility on MEA pipeline. The lack of a good peer group also limited our visibility into the potential market value perception of the African construction business. Almost all African listed construction players (most of them from South Africa) have their activity spread out over different regions including Asia and Australia. On average, these companies' non-African activity represented 43% of FY12 revenues and 41% of FY12 revenues did not derive from construction activities, such as mining or concessions that have very different capital structure requirements.

For these reasons, we have changed our approach and focused our valuation analysis of MEA on two scenarios: (1) Average premium/discount that African players in other sectors are trading vs. the corresponding sector players in Europe in order to assess the "African" trading premium and (2) In-house DCF valuation for MEA. The latter is the methodology which we are now using in our ME SoP. We had until now valued the African businesses using the implicit multiple paid by ME's partner in Angola for 49% of ME Angola and the average trading multiple (EV/EBITDA) of the listed construction players in Africa to value the remaining MEA.

We have changed our methodology as the DCF can better capture the specifics of the business and CF generation in the explicit period. We are only now adopting the DCF due to (1) the higher growth reported and anticipated by ME in Africa and also its wider geographic focus in the region and different business exposure, setting MEA apart from the until now used peer group of mostly South African listed players and (2) the recognition of the shortcomings from using the multiple implicit in the ME Angola transaction due to the narrower perimeter of the acquisition vs. the overall operation in Angola, tax advantages perceived in the reported net profit (Angola minorities in the P&L) in the last two years and substantially higher than expected growth (Construction of the Calueque dam - USD 164mn, Sonangols Expansion Project of a gas stations - USD 107mn, Project IMOLAP - USD 100mn, Financial City Project - USD 73mn, Solar Village Project, to Sonangol Holdings - USD 26mn).

In the absence of an adequate peer group in Africa we chose to look for the African premium across sectors instead… Until now we have been valuing the construction activity of Africa at c.4x EV/ EBITDA14F and the E&S activity in Africa as part of the Portuguese operations (5.7x EV/EBITDA14F). In the specific case of MEA construction activity, we were applying a 3.9x multiple for the Angolan activity (in line with the implicit multiple from the sale of 49% of ME Angola to Sonangol and other Angolan shareholders) while for the remaining African construction activity, we applied a multiple in line with listed African peers (4.4x at the time of our last valuation).

… looking at other sectors As stated above, the lack of an adequate peer group of the listed construction sector in Africa limited the validity of using multiples to value MEA. Looking at other sectors (with a more consistent peer group), we collected more substantial evidence of the "African" trading premium vs. European counterparts, most likely justified by the expected superior growth of African markets despite their considerably higher risk on several fronts, particularly from the perspective of the European investor.

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… Average "African" trading premium on EBITDA and EBIT points to a ME fair value of E 5.6-7.6/share The table below shows that on average African players trade at a 17% premium using EV/EBITDA14F (11% at EV/EBIT14F). By applying this average premium (and min. and max. of the range) to the European pure construction players multiple, we reach an EV/EBITDA14F multiple average of 7.5x (with a range between 9.0x and 6.8x). If we apply this multiple to value MEA, our fair value for ME (including 10% discount) would be E 5.6/sh (for the 7.5x avg multiple) and between E 5.0/ sh and E 6.8/sh (for the 6.8x - 9.0x multiple range) and MEA alone would be worth E 1.39bn (EV) in the case of 7.5x avg. multiple and between E 1.26bn and E 1.66bn using the 6.8x - 9.0x multiple range. Using the average EV/EBITDA multiple of the South-African listed construction stocks (4.5x), our fair value of ME (including 10% discount) would be E 3.2/share and MEA would be worth E 832mn.

If we use the EV/EBIT multiple instead (11.4x avg, 11% premium vs Europe) to value MEA, we would reach a E 1.63bn EV (implicit 8.8x EV/EBITDA14F) and E 6.8/sh fair value of ME (including 10% discount).

African Multiples comparison

CARG12-15 EV/EBITDA14 EV/EBIT14 PER14 EV/SALES14 Sales EBITDA Telcoms AVERAGE Africa 6.0 12.7 12.4 2.5 4% 4% AVERAGE Europe 5.7 12.3 12.8 1.9 -2% -3% Prem. (Disc) 5% 3% -3% 31% Breweries AVERAGE Africa 11.8 14.6 22.9 3.0 10% 11% AVERAGE Europe 10.9 13.4 16.1 2.7 7% 8% Prem. (Disc) 8% 10% 42% 10% Retail AVERAGE Africa 9.7 14.0 20.5 0.8 12% 15% AVERAGE Europe 6.9 10.9 14.6 0.5 4% 5% Prem. (Disc) 40% 29% 41% 63% Cement AVERAGE Africa 8.8 12.0 14.4 4.0 7% 6% AVERAGE Europe 7.7 11.4 12.8 1.5 3% 9% Prem. (Disc) 14% 4% 13% 171% AVERAGE Europe Const (1) 6.4 10.3 12.7 0.8 Avg Prem. (Disc) all sectors (2) 17% 11% 23% 69% Min prem(disc) (3) 5% 3% -3% 10% Max prem(disc) (4) 40% 29% 42% 171% African const Multiples assuming… … Avg Prem. (Disc) all sectors (1) *(1+(2)) 7.5 11.4 15.7 1.4 … Min prem(disc) (1) *(1+(3)) 6.8 10.5 12.3 0.9 … Max prem(disc) (1) *(1+(4)) 9.0 13.2 18.1 2.2 Source: BPI Equity Research and Bloomberg.

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Valuing MEA through DCF As justified above, we are now adopting the DCF to value MEA. Assuming the IPO goes ahead, we believe it will be a terrific opportunity to increase the valuation visibility of the operation and also provide the market in that period with a lot more information that should have the effect of diminishing the perceived risk. In addition, the capital increase should improve the growth potential of the unit, by endowing MEA with the financial chest to tackle new opportunities.

Implicit 6.7x EBITDA14 multiple in our DCF vs 4.2x blended multiple before We broke down MEA Africa into: (1) MEA Angolan construction activity (6.5x implicit EV/EBITDA14F); (2) MEA construction activity in other African countries (7.1x implicit EV/EBITDA14F); and (3) MEA E&S (6.1x implicit EV/EBITDA14F). All together, we are now valuing MEA at 6.7x EV/EBITDA14F or E 1.25bn EV. Given the impact of the change in methodology in our ME valuation, we want to make clear that should we have kept the previous method (3.9x EBITDA14 applied to ME Angola and 4.5x EBITDA for the remaining MEA after updating the peer group multiples), MEA would be worth E 872mn and our fair value of ME would be, E 3.3/share (including 10% discount) or +1% also including all other changes produced in the reviewed SoP.

EBITDA mg

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DCF implicit exit EBITDA multiple of 3.9x - 4.9x For all MEA units, we have assumed a 13.6% WACC computed using a 6.7% country Risk premium assumption for Angola and 6.5% for the remaining African activities.

We have determined the country risk premium using the premium differentials published periodically by Damodaran and applying them to the trading yields of USD bonds from Ghana and finally adjusting to euros (differential of 10Y yields in Germany vs. USD). We also apply a 150bps factor to take into account the political/ economic risk in Angola and also other countries in sub-Saharan Africa. Our risk- free rate in euros is maintained for the entire BPI European research coverage at 3.25% and the asset beta for construction is the same for our sector coverage of 0.8. We assume a pre-tax cost of debt (Rd) of 9.0%, a perpetuity EBIT mg of 15.2% for the Construction activity (Angola and other countries) vs. 17.2%F for 2013 and a 15.3% average from 2014-20 while for E&S we have assumed a 34% EBIT mg vs. 34%F for 2013 and a 34% average from 2014-20.

For the construction business we have also assumed a terminal year cycle adjustment factor of 80%. In essence, that sets a more conservative departing point to calculate the terminal value, recognizing the higher perceived risk in this sector concerning among others the order intake volatility. As a result, the implicit exit EBITDA multiple (in 2020) for the activity in Africa embedded in our valuation is 4.6x for Angola construction and 3.9x for waste, respectively and 4.9x for the rest of MEA, which seems reasonable.

For the sake of sensitivity of our valuation, should we have used no adjustment to the normalized FCF (vs 80% factor in our base case), the implicit EBITDA multiple of our valuation of MEA would climb to 7.5x (FY14F) and our fair value of ME to E 6.2 (E 5.6 post 10% discount), which compares with the adjusted peer multiple range of 6.8x - 9.0x (7.5x average). In that scenario, the exit EBITDA multiple for the construction business of MEA would be 4.9x - 5.2x. We expect more visibility into MEA with the expected IPO of the unit, a situation that would probably decrease risk perceived in estimates and consequently allow for a more aggressive take in our valuation inputs, namely forecasts. MEA - DCF Asumptions

DCF MEA Angola (YE14) Const. Const. Ex. normalized Angola Ex Angola E&S (E mn) 2014F 2015F 2016F 2017F 2018F 2019F 2020F figures Beta assets 0.80 0.80 0.80 EBIT 100 99 110 122 136 151 168 134 Re 15.5% 15.4% 15.5% Adjusted taxes 0 0 0 0 -48 -53 -59 -47 Rf 3.25% 3.25% 3.25% Depreciation&amortization 30 31 35 39 43 48 53 Beta of Equity 0.93 0.94 0.93 (-) Capex -31 -32 -18 -20 -23 -27 -31 Market Premium 6.7% 6.5% 6.7% (-) WCap needs -4 -3 -6 -7 -8 -8 -9 Rd 9.0% 9.0% 9.0% =FCF 95 95 121 134 100 111 122 Tax rate 35.0% 30.0% 35.0% PV FCF 83 93 90 60 59 57 D/EV 20.0% 20.0% 20.0% PV explicit period 441 WACC 13.6% 13.6% 13.6% Perpetuity 401 Perpetuity period EV 841 EBIT margin 15.2% 15.2% 34.0% ME Stake (51%) 429 g 2.0% 2.0% 2.0% Implicit EV/EBITDA 14F 6.5x ROIC 13.6% 13.6% 13.6% Implicit EV/EBIT 14F 8.4x Rev. cycle adj. 80.0% 80.0% 90.0% Exit EV/EBITDA 4.6x Source: BPI Equity Research. Source: BPI Equity Research.

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DCF MEA Const. Ex Angola (YE14)

normalized (E mn) 2014F 2015F 2016F 2017F 2018F 2019F 2020F figures EBIT 70 79 88 98 109 121 135 108 Adjusted taxes -21 -24 -26 -29 -33 -36 -40 -32 Depreciation&amortization 21 25 28 31 34 38 43 (-) Capex -22 -26 -14 -16 -19 -22 -25 (-) WCap needs -4 -7 -5 -5 -6 -7 -7 =FCF 44 47 70 78 86 95 105 PV FCF 41 55 53 52 50 49 PV explicit period 300 Perpetuity 343 EV 643

Implicit EV/EBITDA 14F 7.1x Implicit EV/EBIT 14F 9.2x Exit EV/EBITDA 4.9x Source: BPI Equity Research.

DCF MEA E&S (YE14)

normalized (E mn) 2014F 2015F 2016F 2017F 2018F 2019F 2020F figures EBIT 22 26 28 31 33 37 40 44 Adjusted taxes -8 -9 -10 -11 -12 -13 -14 -15 Depreciation&amortization 6 7 7 8 9 10 11 (-) Capex -5 -6 -7 -7 -8 -9 -11 (-) WCap needs -1 -1 -1 -1 -1 -1 -1 =FCF 14 17 18 20 22 24 25 PV FCF 15 14 14 13 13 12 PV explicit period 80 Perpetuity 93 EV 173

Implicit EV/EBITDA 14F 6.1x Implicit EV/EBIT 14F 7.7x Exit EV/EBITDA 3.9x Source: BPI Equity Research.

SHAREHOLDER STRUCTURE OF THE NEW MEA

At the time of the IPO announcement ME stated that it wanted to maintain a strong controlling stake, assumed by the CEO to be at least 51% and announced a share distribution to current ME shareholders of approximately 20% of MEA pre- capital increase. ME also guarantees to current shareholders the sale at the capital increase price of the assigned shares of MEA.

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ME to keep controlling stake We run three scenarios assuming respectively that ME dilutes its stake to 51%, 60% and 70% of MEA (post K increase). We also assume Mota family will not subscribe the capital increase of MEA, which means that it would end up with a direct stake in MEA of 8.6% or 10.2% or 11.9% in the same order, which also assumes the family does not exercise the right to sell the entire direct stake in the operation. The family should be assigned a 13.6% stake in MEA pre capital increase that results from the product of its current 67.8% stake in ME and the 20% of MEA to be assigned pre-capital increase to ME shareholders.

E 59mn and E 555mn MEA K increase proceeds range In order to estimate the potential capital increase proceeds, we have to assume, among others, the capital structure of MEA (we estimate E 300mn of net debt), final stake of ME and MEA valuation. We run several scenarios using, apart from our base-case valuation, the same scenarios explored in the valuation chapter concerning MEA. The range of potential proceeds is as wide as the valuations assumed. We indicate a range of E 59mn to E 555mn varying from a total 70% stake held by ME post capital increase and a valuation of MEA using a 4.5x EBITDA14 multiple (avg. construction peers in SAR) to a final 51% stake in MEA and valuing it using a 9x multiple. In our base case scenario (ME ends up with 60% stake and MEA valued at DCF with an implicit 6.7x EBITDA14), the capital increase proceeds would be E 236mn, assuming the E 300mn net debt or E 311mn assuming 0 debt.

ME Fair value (E /sh)

EBITDA-multiple 14F Fair value upside w/ 10% disc. upside African premium based max Multiple of 9x 7.6 73% 6.8 56% African peers Max (7.8x) 6.5 48% 5.8 33% African premium based avg. Multiple of 7.5x 6.2 43% 5.6 29% BPI’s Fair Value MEA (6.7x) 5.5 27% 5.0 14% African constr. peers Avg (4.5x) 3.5 -20% 3.1 -28% Source: BPI Equity Research.

"Newco" valuation (ND= E 300mn)

ME SGPS stake post K incr EBITDA-multiple 14F 51% 60% 70% African premium based max Multiple of 9x 1913 1698 1509 African peers Max (7.8x) 1602 1422 1264 African premium based avg. Multiple of 7.5x 1534 1361 1210 BPI’s Fair Value MEA (6.7x) 1331 1182 1050 African constr. peers Avg (4.5x) 745 661 588 Source: BPI Equity Research.

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K increase proceeds (E mn)

ME SGPS stake post K incr EBITDA-multiple 14F 51% 60% 70% African premium based max Multiple of 9x 555 340 151 African peers Max (7.8x) 465 284 126 African premium based avg. Multiple of 7.5x 445 272 121 BPI’s Fair Value MEA (6.7x) 386 236 105 African constr. peers Avg (4.5x) 216 132 59 Source: BPI Equity Research.

Deleverage expected at ME holding level The eventual success of this operation should enable the company to alleviate some pressure on its BS increasing its fire power to continue its international growth. On a consolidated level and using our base-case scenarios discussed above, ME ND/EBITDA14F would fall from 2.2x to 1.6x (range of 2.1 - 0.5). Our base-case scenario assumes MEA will be left with E 300mn net debt. In reality, there is no clear information to make a reasonable estimate. The lower the debt left in MEA the higher the potential proceeds, but we also believe ME will take advantage of the operation to reinforce its balance sheet in addition to the proposal to sell ME treasury stock.

Consolidated ND 14F - ME

ME SGPS stake post K incr EBITDA-multiple 14F 51% 60% 70% African premium based max Multiple of 9x 0.8 1.4 1.9 African peers Max (7.8x) 1.1 1.5 1.9 African premium based avg. Multiple of 7.5x 1.1 1.5 1.9 Current fair value MEA (6.7x) 1.3 1.6 2.0 African constr. peers Avg (4.5x) 1.7 1.9 2.1 Source: BPI Equity Research.

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SALE OF TREASURY SHARES (5.4%) TO REINFORCE CAPITAL STRUCTURE

As part of the above mentioned process and to reinforce the group's capital structure, the EGM will also deliberate on the plan to sell the group's treasury stock which currently represents 5.42% of the share capital. These shares should be sold up to 18 months after EGM approval (June 2015) at a price not below 15% of the average market price in the week immediately preceding the alienation. At the current market price, the cash in from the sale of all treasury shares (5.42%) should reach E 48mn or E 41mn assuming the 15% max allowed discount.

PRIVATIZATION OF EGF

The above mentioned sale of treasury shares should help the company to gain financial muscle to compete for the announced privatisation of the Portuguese public waste treatment company EGF. This should materialise over 2014 with press reports suggesting several interested parties (more than 10 companies including the Portuguese ME and Teixeira Duarte but also the Brazilian companies Odebrecht and Solvi and the Chinese company Beijing Enterprises Water Group), pointing to a valuation of c.E 170mn. Empresa Geral do Fomento (EGF) is Águas de Portugal Group's sub-holding company responsible for guaranteeing the treatment and recovery of waste. The management of waste treatment and recovery systems is undertaken by 11 concessionary companies created in partnership with EGF and the Municipalities. These companies process around 3.7mn tons of municipal solid waste a year and serve about 60% of the Portuguese population.

We understand that this deal could be very interesting for ME with the possible integration of EGF operations with those of SUMA (ME's waste treatment company and market leader with 51% in the privatised Portuguese waste market) creating a new player with a c.80% market share and benefiting from potential economies of scale.

CHANGE IN ESTIMATES … +4% EBITDA13-15 ON THE BACK OF EXPECTED RESILIENCE IN MEA'S HIGH DOUBLE-DIGIT MARGIN

2013-15F top line cut by an avg. 2% mainly impacted by a small cut (-2% from 2013- 15) in the European E&S estimates (3Q revenues stood 4% below our forecast) and a small (-0.4% from 2013-15) cut in top line from African E&S activity. Top line from America was also cut by an average of 2% after lower than expected revenues in 3Q (9% below est.). We also highlight the expected higher negative effect of the "Holding" line related to the services provided by the corporate centre. This should rise alongside the company's increasing international efforts with a continuing insignificant impact at EBITDA level (this movement was already notable in 3Q results).

EBITDA 2013-2015 estimates increased by an avg. of 4% mainly on the back of (1) better construction margins in Europe (which stood 5pp above est. in 3Q) and (2) improved EBITDA margins expected for the African construction market where the strong orderbook and resilience of EBITDA mg in past quarters above 20% (23% in 9M) have led us to revise our 2014/15 margin to 21% and 20% respectively (from prev. 19% / 18.5%).

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Change in Estimates

New Old Chg Sales (E mn) 13F 14F 15F 13F 14F 15F 13F 14F 15F Europe 989 861 886 983 867 889 1% -1% 0% Construction 679 538 549 664 536 544 2% 0% 1% E&S 310 323 337 319 331 345 -3% -2% -2% Africa 1 003 1 113 1 246 972 1 137 1 254 3% -2% -1% Construction 949 1 047 1 171 918 1 073 1 176 3% -2% -1% E&S 54 66 76 54 65 78 0% 2% -3% America 443 670 870 461 711 850 -4% -6% 2% Holding -101 -110 -124 -54 -60 -66 89% 82% 88% Total 2 335 2 534 2 877 2 362 2 655 2 928 -1% -5% -2%

EBITDA (E mn) Europe 97 80 89 89 80 88 8% 0% 1% Construction 40 20 24 32 20 22 24% -1% 8% E&S 57 60 66 57 60 66 -1% 0% -1% Africa 232 248 267 234 232 251 -1% 7% 6% Construction 209 220 234 211 204 218 -1% 8% 8% E&S 23 28 33 23 28 33 0% 2% -3% America 39 70 91 41 71 85 -6% -1% 7% Holding -2 -2 -3 -3 -3 -3 -16% -19% -17% Total 365 396 445 362 380 421 1% 4% 6%

EBITDA mg Europe 9.8% 9.3% 10.1% 9.1% 9.2% 9.9% 0.7pp 0.0pp 0.1pp Construction 5.9% 3.7% 4.3% 4.9% 3.8% 4.0% 1.0pp 0.0pp 0.3pp E&S 18.2% 18.5% 19.5% 17.9% 18.1% 19.3% 0.3pp 0.4pp 0.2pp Africa 23.1% 22.3% 21.4% 24.1% 20.4% 20.0% -1.0pp 1.9pp 1.4pp Construction 22.0% 21.0% 20.0% 23.0% 19.0% 18.5% -1.0pp 2.0pp 1.5pp E&S 43.0% 43.0% 43.0% 43.0% 43.0% 43.0% 0.0pp 0.0pp 0.0pp America 8.8% 10.5% 10.5% 9.0% 10.0% 10.0% -0.2pp 0.5pp 0.5pp Holding 2.2% 2.2% 2.2% 5.0% 5.0% 5.0% -2.8pp -2.8pp -2.8pp Total 15.6% 15.6% 15.4% 15.3% 14.3% 14.4% 0.3pp 1.3pp 1.1pp Source: BPI Equity Research.

Regarding the company's target for 2015, we remain slightly below at top line and EBITDA following our revision (5% below and 1% respectively). In Africa we expect the company in 2013 to surpass its topline guidance for 2015 (E 970mnF for FY15 vs. E 706mn already recorded in 9M13) although we remain more conservative on the European market by expecting a 4% drop in 2014 for the Portuguese construction market vs. a company guidance of a flat top line. On Latam, our main difference is cantered on expected EBITDA mg (11%F by us vs. 13% forecasted by the company). For this region we remain on the conservative side. We expect the company to enjoy a strong top line increase (helped by the recent E 660mn road works contract awarded in Mexico) though EBITDA mg was never above 11% in this region (between 7.2% in 2010 and 10.5% in 2012 and 8.8% in 9M13). If we assume an EBITDA mg of 13% for Latam (vs. our 11% forecast) from 2015 onwards our FV of ME increases by 14% (+E 0.7/sh) to E 5.7/sh (including 10% discount).

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VALUATION AND RECOMMENDATION

Revisiting our MEA valuation methodology … We are increasing our valuation for ME by 50% or +E 1.7/sh mainly due to: (1) an estimate revision of MEA (+E .5/sh), now expecting a resilient EBITDA mg of 20% from 2015 onwards vs. the previous 18.5%, strong orderbook (more than 25 months of sales), and orderintake prospects for the African market; (2) a change in the valuation method of MEA (+E 1.8/sh) now using a DCF with an implicit 6.7x vs. the previous 4.2x implicit valuation; (3) the MtM of treasury shares (+E 0.09/ sh), Martifer & Glint stakes (E +0.04/sh); (4) lower leasing and factoring after a 6% qoq decrease in 3Q (+0.09/sh); and (5) a E 20mn NWK recovery expected for 4Q12 in line with the average of the last 3 years 4Q NWK movement (+E 0.12/sh).

Change in Valuation (E)

7/6 +1/23 +1/1: +1/15 +1/1: 6/6 +2/93

-1/64 5/6 4/7: +1/64 6/64 6/11 4/6

-1/84 -1/19 3/6 -1/15 XD NFB Ejtd/ Tfswjdft Hmjouu QUZF25 Mbubn ftujnbuft wbmvbujpo Tnbmmdbq Mpxfs NFBdijo tibsft Fvspqf& PmeGWZF25 NuNNBS& Dpodfttjpot Dpotusvdujpo OfxGWZF25 Mfbtjoh&Gbdu NuNUsfbtvsz

Source: BPI Equity Research.

… but Ascendi continues to be a black box The concession arm of ME (Ascendi - 60% stake and equity consolidated) continues to be a "black box" when considering the information reported (equity consolidated P&L and BS contribution) and its significant weight in ME's asset value. On this unit we revised our estimate to incorporate the cut agreed with the government in the 5 Availability payment concessions (we assumed a 20% cut in rents) partly offset by lower maintenance costs and capex. As a result, we assume a negative NPV of E 47mn for ME's indirect stake that we deduct from the reported E 150mn investment book value of the respective concessions. For the remaining key assets (Lusoponte, Brazialian and Mexican concessions), we used an adj. investment BV reflecting the changes in cost of capital since the investment date eroding 9% of the investment value.

A potential deal either at the level of Ascendi (entry of a new partner) or sale of individual assets could increase valuation visibility and endow the group with means to tackle opportunities in the concession business.

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Valuation of ME’s 60% stake in Ascendi

E mn Equity inv.by ME BPI Method 5 Availability payment concessions 150 103 DDM Lusoponte 82 70 Adj. BV Brazilian concessions 40 37 Adj. BV Mexican concessions 43 42 Adj. BV Total 315 253 Source: BPI Equity Research.

ME - SoP

EV/EBITDA14F Business E mn implicit Method %EV MEA 1 247 6.7x DCF 54% Africa ex-Angola (100%) 643 7.1x DCF 28% Angola (51%) 429 6.5x DCF 18% Services & Environment (100%) 173 6.1x DCF 7% Construction (Europa + Latam) 431 4.8x DCF 17% Property (BV) 25 1x BV 1% Services & Environment 350 5.8x DCF 17% Concessions (attributable equity) 253 BPI (Adj Equity Inv.and DDM) 10% Martifer (37.5%) (1) 27 @ MV 1% Glintt (2.3% stake) 0.5 @ MV 0% Holding costs -15 6.0x EBITDA13F -1% TOTAL EV adjusted 2 318 5.1x Net Debt YE14 -884 Provisions -89 Off balance sheet debt (2) -311 Treasury shares (5.4%) at MV 48 Financial Inv. (3) 170 Minorities (4) -120 Equity value 1 133 # shares (mn) 205 Value per share (E) 5.53 10% Small cap Discount 10% YE14 Price Target 5.00 (1) @ 0.72/share. (2) Factoring and leasing. (3) ex-Martifer and Ascendi, inc. Idaqua,Tertir's plots of land and assets available for sale. (4) E&S. Source: BPI Equity Research., Bloomberg.

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Keeping Neutral Recommendation… expecting more visibility with the IPO details We are keeping our Neutral Recommendation despite the significant YE14 Price Target increase to E 5.00 (incl a 10% small cap discount). The upgrade of our valuation of MEA has been the major driver of the target increase. The DCF of the unit has an implicit EBITDA14F multiple of 6.7x compared to a peer group multiple range of 6.8x-9.0x (7.5x average). Still, we also recognize that the generated shareholding cascade after the IPO may increase the due holding discount. Some investors willing to gain access to Africa through ME will likely move into the newco and the risk raised from the expected 5.4% placement of treasury shares could also pressure the stock until the placement is done. However, in the meantime, the market should be in the process of removing discounts due to the higher visibility of MEA should the IPO go through. As extensively discussed, investors must realize the sensitivity of ME valuation to valuation input assumptions and the risks involved with operating in the construction market in Africa and Latam in particular. In addition, we also remind the high leverage of ME balance sheet, particularly when including the proportional stake of its interests in affiliates even if the associated debt is non-recourse to ME, as mentioned several times by ME publicly. Even after a significant improvement in increasing the average maturity of its debt ME continues to have to refinance 37% (E 357mn) of its debt in the next 2 years. Interest coverage ratio should improve from 2.0x in FY12 to 2.5x in FY13 and 3.3x in FY15.

SENSITIVITY ANALYSIS

ME Fair value (E /sh)

EBITDA-multiple 14F Fair value upside w/ 10% disc. upside African premium based max Multiple of 9x 7.6 73% 6.8 56% African peers Max (7.8x) 6.5 48% 5.8 33% African premium based avg. Multiple of 7.5x 6.2 43% 5.6 29% Current fair value MEA (6.7x) 5.5 27% 5.0 14% African constr. peers Avg (4.5x) 3.5 -20% 3.1 -28% Source: BPI Equity Research.

Sensitivity analysis of ME Fair Value to a change in CRP (Before 10% Discount)

CRP Angola 4.7% 6.70% 8.70% 10% 4.5% 6.50 6.05 5.71 5.52 CRP Subsharian Africa 6.5% 5.99 5.53 5.19 5.01 8.5% 5.59 5.14 4.80 4.61 10% 5.36 4.91 4.56 4.38 Source: BPI Equity Research.

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Sensitivity of ME Fair Value to MEA Construction - growth and mg (E)

Sales growth after 2014 5% 8% 12% 15% 20% 10% 2.12 2.23 2.39 2.52 2.75 15% 3.29 3.56 3.96 4.30 4.93 LT EBITDA mg 20% 4.47 4.89 5.53 6.08 7.11 22% 4.93 5.42 6.16 6.79 7.99 25% 5.64 6.22 7.11 7.86 9.30 Source: BPI Equity Research.

Sensitivity of ME Fair Value to MEA E&S - growth and mg (E)

Sales growth after 2014 5% 8% 10% 15% 20% 30% 5.47 5.49 5.51 5.54 5.58 35% 5.48 5.50 5.52 5.55 5.59 LT EBITDA mg 43% 5.50 5.52 5.53 5.57 5.60 45% 5.50 5.52 5.54 5.57 5.61 50% 5.51 5.54 5.55 5.58 5.62 Source: BPI Equity Research.

Sensitivity of ME Fair Value to Latam E&C - growth and mg (E)

Sales growth after 2014 5% 8% 12% 15% 20% 5% 3.37 3.27 3.20 2.96 2.63 8% 4.32 4.35 4.37 4.39 4.38 LT EBITDA mg 11% 5.26 5.42 5.53 5.82 6.13 13% 5.89 6.14 6.31 6.78 7.30 15% 6.52 6.86 7.09 7.74 8.47 Source: BPI Equity Research.

Entry of Angolan shareholder in Soares da Costa Construção should have been made at Breakdown of SdC Construção an implicit valuation of between 7-9x EBITDA 2012 Revenues (ex US activity) In August 2013 Soares da Costa (the 3rd construction player in Portugal and with a strong exposure to Africa) announced that it reached an agreement with an Angolan Investor (Mr. António Mosquito) aiming to capitalise its construction unit (Soares da Costa Construção - SdC Construção). Of the total SdC construção activity perimeter it was excluded the activity in US (Prince) and in Israel that should remain 100% controlled by Soares da Costa holding group. With this agreement Mr. António Mosquito made a E 70mn capital increase in SdC Construção (ex Israel and the US) in exchange for 66.7% of the company while Soares da Costa holding Group would get the remaining 33.3%. The deal values 100% of SdC Construção equity at E 105mn. According to our estimates, this capitalisation should have implied an EV/EBITDA12 multiple of between 7.3x and 9.0x (depending Source: SdC and BPI Equity Research. on whether we consider the recurrent EBITDA12 or the reported EBITDA12).

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Apart from US activity (Israel is not disclosed), SdC Construção is mainly focused SdC Construção EV/EBITDA on Angola (57%), Portugal (30%) and Mozambique (10%). If we assume for MEA multiples the valuation of the above mentioned multiples implicit in the SdC capital increase, E our fair value of ME (including a 10% discount) would reach 5.4/sh (7.3x EBITDA) (E mn) or E 6.8/sh (9.0x EBITDA). Equity (100%) 105 o.w. António Mosquito (66.7%) 70 Soares Da Costa Holding (33.3%) 35 Net Debt (ex US) (1) 282 EV 387 EV/EBITDA12 9.0x EV/EBITDA12 rec. 7.3x (1) excluding the US debt - assumed by us as the proportionality of US operations in SdC Construção - 18% of revenues. Source: SdC, BPI Equity Research.

23 Equity Research 4 Mota-Engil 4 December 2013

P&L CAGR (E mn) 2010 2011 2012 2013F 2014F 2015F 2016F 12-16F Revenues 2005 2176 2243 2335 2534 2877 3074 8% EBITDA 237 296 287 365 396 445 490 14% EBITDA adj. 237 296 287 365 396 445 490 14% EBITDA adj. mg. 12% 14% 13% 16% 16% 15% 16% Depreciation&others 106 127 116 134 145 164 174 11% EBIT 132 169 171 231 251 281 316 17% EBIT adj. 132 169 171 231 251 281 316 17% Net financial results -43 -79 -60 -87 -89 -81 -69 4% Income tax 19 19 37 38 43 53 66 15% Others 0 0 0 0 0 0 0 Minority Interests 32 38 33 52 53 56 62 17% Net Profit reported 37 33 41 54 65 91 119 31% Net Profit adj. 37 33 41 54 65 91 119 31%

Balance Sheet CAGR (€ mn) 2010 2011 2012 2013F 2014F 2015F 2016F 12-16F Net Intangibles 400 443 252 242 231 218 205 -5% Net Fixed Assets 569 565 613 662 694 731 738 5% Net Financials 514 371 404 447 461 478 508 6% Inventories 203 242 269 279 303 344 368 8% ST Receivables 1008 921 924 1023 1084 1154 1216 7% Other Assets 560 747 865 891 948 1046 1102 6% Cash & Equivalents 201 235 272 272 272 272 272 0% Total Assets 3456 3524 3599 3816 3993 4244 4408 5% Equity & Minorities 481 415 436 521 618 744 903 20% MLT Liabilities 945 936 781 781 781 781 781 0% o.w. Debt 697 672 491 491 491 491 491 0% ST Liabilities 2030 2174 2381 2513 2593 2719 2724 3% o.w. Debt 518 567 632 700 666 606 492 -6% o.w. Payables 482 478 526 547 594 675 721 8% Equity+Min. + Liabilities 3456 3524 3599 3816 3993 4244 4408 5%

Cashflow (€ mn) 2010 2011 2012 2013F 2014F 2015F 2016F + EBITDA 237 296 287 365 396 445 490 - Chg in Net W.C. 22 -2 3 -93 -50 -50 -50 - Income Taxes -19 -19 -37 -38 -43 -53 -66 = Operating Cash Flow 240 275 253 235 303 342 374 - Growth Capex -102 -77 -95 -101 -94 -112 -90 - Replacement Capex -59 -48 -50 -50 -50 -50 -50 - Net Fin. Inv. 0 0 0 0 0 0 0 = Cash Flow after Inv. 79 150 108 83 159 179 234 - Net Fin. Exp. -51 -79 -82 -101 -103 -98 -99 - Dividends Paid -21 -21 -21 -21 -21 -21 -21 +/- Equity 0 0 0 0 0 0 0 Other -37 -40 149 -30 0 0 0 =Change in Net Debt 30 -10 -154 69 -35 -60 -114 Net Debt (+)/Net Cash (-) 1014 1004 850 919 884 825 711

Growth, per share data and ratios 2010 2011 2012 2013F 2014F 2015F 2016F Sales growth 1% 9% 3% 4% 9% 14% 7% EBITDA Adj. growth 21% 25% -3% 27% 8% 12% 10% EPS Adj. growth -49% -10% 22% 34% 20% 39% 31% Avg. # sh (mn) 205 205 205 205 205 205 205 Basic EPS 0.18 0.16 0.20 0.27 0.32 0.44 0.58 EPS Adj. Fully diluted 0.18 0.16 0.20 0.27 0.32 0.44 0.58 DPS 0.11 0.11 0.11 0.11 0.11 0.11 0.11 Payout 31% 61% 64% 52% 39% 33% 23% ROCE (after tax) 6.4% 8.1% 8.9% 11.9% 11.9% 12.8% 13.9% ROE 8.5% 7.5% 9.6% 11.4% 11.5% 13.4% 14.5% Gearing (ND/EV) 48% 48% 41% 44% 42% 39% 34% Net Debt/EBITDA 4.3 3.4 3.0 2.5 2.2 1.9 1.5 Source: Company data (2010, 2011, 2012) and BPI Equity Research (F).

24 Equity Research 4 Mota-Engil 4 December 2013

Research

Bruno Almeida da Silva, CFA [email protected] (351) 22 607 4375

Iberia Banking Carlos Peixoto [email protected] (351) 22 607 3141 Alberto del Corro [email protected] (34) 91 328 9856

Food, Travel & Leisure, Healthcare João Safara [email protected] (34) 91 328 9853 Guilherme Macedo Sampaio [email protected] (351) 22 607 3179

Infrastructures Flora Trindade, CFA [email protected] (351) 22 607 4377 Filipe Leite, CFA [email protected] (351) 22 607 3136

Retail, Engineering, Industrials & José Rito [email protected] (351) 22 607 3142 Capital Goods Bruno Bessa [email protected] (351) 22 607 3183

TMT's Pedro Oliveira [email protected] (351) 22 607 3194

Utilities, Renewables, Oil Flora Trindade, CFA [email protected] (351) 22 607 4377 Gonzalo Sánchez-Bordona [email protected] (34) 91 328 9852

Macro & Strategy Tiago Veiga Anjos, CFA [email protected] (351) 22 607 3275

France Utilities & Industrials Louis Boujard [email protected] (33) 1 4450 3343

Metals & Mining, Oil & Gas Alexandre Leroy [email protected] (33) 1 4450 3311

Stock Picking Pierre Bucaille [email protected] (33) 1 4450 3358

Consumer Hubert d'Aillières [email protected] (33) 1 4450 3326

Institutional Sales (Iberia) Ana Spratley Ferreira, CFA [email protected] (351) 22 607 3196 Francisco Pires [email protected] (351) 22 607 3296 Frederico Torre, CFA [email protected] (34) 91 432 1792 Javier Barrio [email protected] (34) 91 432 1793 Luís Sousa Pinto, CFA [email protected] (351) 22 607 3256 Pedro Prista Guerra, CFA [email protected] (351) 22 607 3218 Raquel Araújo Almeida [email protected] (351) 22 607 3243 Sérgio Godinho [email protected] (351) 22 607 3139

Institutional Sales (France) Pedro Prista Guerra, CFA [email protected] (33) 1 4450 3325

Sales/Trading Luís Sousa Pinto, CFA [email protected] (34) 914 321 797 Carlos Gallego [email protected] Francisco Chaves [email protected] José Maria Alves [email protected] Marta Brito e Cunha [email protected] Pedro Moreira [email protected] Ramon Blanco [email protected] Xavier Estragués [email protected]

Publishing Maria do Céu Gonçalves [email protected] (351) 22 607 3137 Carla Gomes Alves [email protected] (351) 22 607 3160

Economics and Fixed Income Research

Paula Gonçalves Carvalho Chief Economist [email protected] (351) 21 310 1187

25 BPI

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INVESTMENT RATINGS AND RISK CLASSIFICATION (TOTAL RETURN IN 12-18 MONTHS): INVESTMENT RATINGS STATISTICS

Low Risk Medium Risk High Risk As of 29th November BPI Equity Research's investment ratings were Buy/CoRe Buy >15% >20% >30% distributed as follows: Neutral >5% and < 15% >10% and <20% >15% and < 30% Buy 23% Reduce >-10% and < 5% >-10% and < 10% >-10% and < 15% CoRe Buy 9% Sell < -10% < -10% < -10% Neutral 41% These investment ratings are not strict and should be taken as a general rule. Reduce 14% Sell/Accept Bid 9% Under Revision/Restricted 3% Total 100%

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