Contract Wins And Governance Reforms Will Drive Infrastructure Demand

Key Takeaways

• Strong international contract wins and streamlined focus on core infrastructure assets position the company for sustained revenue growth and improved earnings quality.
  
• Margin expansion, lower debt risk, and governance reforms increase financial stability and potential for long-term profitability.
  
• High reliance on construction, unresolved legal and reputational challenges, and services division underperformance threaten profitability, revenue stability, and long-term growth prospects.

Catalysts

Engages in the construction and concession businesses in the United States, Canada, Mexico, Chile, Peru, Colombia, Spain, Central and Eastern Europe, Northern Europe, and internationally.

• Strong new contract wins across North America, Europe, and Latin America (book-to-bill ratio of 1.3; backlog up to €8.6 billion) position OHLA to capture multi-year infrastructure demand resulting from ongoing urbanization and public investment, supporting stable revenue growth.
  
• Margin improvement in the construction division (EBITDA margin at 6.8%, up from 4% last year) and disciplined execution of a €40 million cost reduction plan provide visibility for sustainably higher net margins and enhanced earnings stability.
  
• Successful recapitalization, debt reduction (leverage down to 2.2x from 11x in four years), and the extension of debt maturities to 2029 meaningfully lower financial risk and interest expenses, boosting future net profit and cash flow generation.
  
• Governance overhaul with a more professional, independent Board, alongside cleared legacy litigation risks, can restore investor confidence and improve access to new public-private partnership opportunities, enhancing long-term revenue and margin potential.
  
• Ongoing asset disposals (Services division, Canalejas) and portfolio pruning allow OHLA to refocus on core, higher-growth, and higher-value segments-especially recurring-revenue infrastructure assets-which should further boost margins and quality of earnings.

Obrascón Huarte Lain Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Obrascón Huarte Lain's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.0% today to 1.1% in 3 years time.
• Analysts expect earnings to reach €45.7 million (and earnings per share of €0.03) by about October 2028, up from €-37.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.8x on those 2028 earnings, up from -17.3x today. This future PE is greater than the current PE for the GB Construction industry at 20.9x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.34%, as per the Simply Wall St company report.

Obrascón Huarte Lain Future Earnings Per Share Growth

Risks

• Despite operational improvements and recapitalization progress, Moody's recently downgraded OHLA's credit rating from B3 to Caa1 (stable), raising concerns about perceived credit risk and potentially increasing future borrowing costs, which could pressure net margins and detract from earnings.
  
• The company's construction division provides 94% of group sales, signaling high revenue concentration risk; any significant downturn or disruption in the global construction sector, regional political or economic instability (especially in core markets like Europe and Latin America), or shifts in public infrastructure budgets could sharply impact future revenue growth.
  
• The ongoing sale and restructuring of the Services division, prompted by two years of underperformance and shrinking margins, highlights challenges in diversification; delays in the planned sale or continued weaker performance could drag group profitability and strain overall net margins for the foreseeable future.
  
• Unresolved legal disputes and project delays (such as the Biobío concession in Chile and the outstanding Villar Mir debt) could lead to further impairments, unanticipated provisions, or impaired cash flow, undermining both earnings stability and investor confidence in the company's long-term outlook.
  
• Persistent issues related to industry reputation-such as historical controversies, recent Board reshuffling, and ongoing media scrutiny-may hinder OHLA's ability to win new high-margin tenders or attract major international partners, negatively affecting forward order book strength, revenue visibility, and long-term earnings growth.

Valuation

• The analysts have a consensus price target of €0.51 for Obrascón Huarte Lain based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €0.7, and the most bearish reporting a price target of just €0.38.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.2 billion, earnings will come to €45.7 million, and it would be trading on a PE ratio of 26.8x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of €0.46, the analyst price target of €0.51 is 9.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.