🏗️👷 Business Overview

🎯Key Metrics

Total: -2.5/17

• +1 ✅ Projected Operating Margin: 12%
• +0 ⚠️ Projected 5-Year Revenue CAGR: 8%
• +0 ⚠️ Last 5-Year ROIC: 9.83%
• +0 ⚠️ Estimated Cost of Capital: 9.83% (around ROIC)
• -1 ❌ Last 5-Year Shares Outstanding CAGR: +0.50%
• +1 ✅ Projected 5-Year EPS CAGR: 12.36%
• +1 ✅ Projected 5-Year Dividend CAGR: 11.63%
• -1.5 ❌ Estimated Debt Rating: B1
• -2 ❌❌ Morningstar Moat: None
• -1 ❌ Morningstar Uncertainty: High

During the 2030 projections, the Mota-Engil management projected the following for the future of the company:

2026

• Revenue Growth:
  • to accelerate to 10-15%
• Operating Margin
  • to be sustained around 11-12%
• Net Margin
  • to be maintained around 2.5-3%
• EPS
  • to grow from 0.43 euros to 0.47-0.60

2030

• Revenue Growth
  • 9.000 million by 2030, representing a 10% CAGR
• Operating Margin
  • to expand into >= 13%
• Net Margin
  • to expand into >=4%
• EPS
  • to grow from 0.43 euros to 0.55-1.17 (this are my expectations, given my lower to higher assumptions, presented later on during this valuation).

To be honest this confident and overall good projections by the management took me by surprise and I reavaluated my position on the company. As always, given the riskiness of the company, both in its ciclicality and geographic exposure to risky countries, please make sure to have a higher margin of safety if the opportunity arises.

📈Business Valuation

To calculate the intrinsic value of the company I’ll use multiple methods:

• Discounted Cash Flows (DCF) – Intrinsic value is estimated by projecting its free cash flows over the next 10 years and discounting them to present value;
• EPS Growth – the fair value is estimated by projected the Earnings Per Share CAGR for the next 5 Years and then, given its current and historic values of PE, come up with a PE for the 5th Year. This will give us its price 5 Years from now using the formula: Price = EPS x PE that we then discount using the estimated cost of capital;
• Historical EV/EBITDA – we assume mean reversion to the historical EV/EBITDA values.

I’ll give more weight to the DCF and EPS methods, and only then the historical one. Giving the changing landscape of the world in general, is very difficult to believe that in 100% of the cases mean reversion to historical values is guaranteed.

Cost of Capital

I’ve used the annual financial statements of the company, the 10-Year Germany bonds as the risk free rate (for companies residing in Euro countries is what I normally use) and revenue geographic exposure to come up with its cost of capital, cost of debt and cost of equity. Please also note, that given the fact that Moody’s don’t provide a rating for the company we’ll be estimating it using its operating income.

Cost of Capital: 9.83%.

This value will be used later as a discount rate in the valuation methods.

Please feel free to come up with your own values by using the tool I’ve used: Cost of Capital – The Fair Value Journal. It is and will ever be completely free 🙂

Discounted Cash Flows (Weight: 50%)

I’ve used the annual financial statements of the company and highly focused on the 2026 and 2030 projections by the management team. to come up with the revenue growth and operating margins assumptions.

Some notes on the inputs above:

• (Year 1) Initial Revenue Growth: management expects a 2026 revenue growth between 10-15%. I’m assuming here a base case of 10%, so still within but on the lower end;
• (Years 2-5) 2027-2030 Revenue Growth: management expects a 10% CAGR during these years. I’m assuming that they were overconfident with their estimates and I set it to 8%, still very good, but below the management projections. I could be wrong (ups – as I always am) so we will allow for a more optimistic view during the Monte Carlo simulations later on;
• Initial and Terminal Operating Margin: management expects this to expand from the current 11-12% into a 12-13%. Again, I’m bringing it down a notch, expanding it from 11% into 12%.

This gives us a estimated fair value of 9.63 euros for Mota Engil.

As I’ve said above, we can also do some Monte Carlo simulations to execute multiple DCF valuations. Each simulation will randomize the inputs between some pre-defined values. For this I used as the base case my assumptions, for the higher end of the range the management projections; and for the lower value I’ve brought my base case assumptions down a notch.

As you can see from the above Mota Engil seems to be undervalued. Given that the company’s current price of 4.82 euros is below P10 we can extrapolate that there’s more than 90% probability for the company to be undervalued.

Please be free, as before, to fill in your own values. Make the valuation your own and do yourself a DCF valuation using your own assumptions: DCF – The Fair Value Journal

EPS Growth (Weight: 30%)

For this valuation method, I’ve come up with three different scenarios, given the management expectations for 2030:

Bull (aligned with management expectations)

• Revenue: 9.000 million
• Net Margin: 4.0%
• Net Income: 360 million
• Shares Outstanding: 306.78 million (given the company’s history of dilluting shareholders, I’m assuming as best case there’s no dillution and the total of shares outstanding remain the same)
• EPS: 1.17 euros (22.16% CAGR)
• P/E: 12 expansion from the current 11

Base (my assumptions, expecting the real values to be a little below the management projections)

• Revenue: 8.000 million
• Net Margin: 3.0% (still a little above its current value)
• Net Income: 240 million
• Shares Outstanding: 312.92 million (assuming a dillution of ~2.0%)
• EPS: 0.77 euros (12.36% CAGR)
• P/E: 11 (maintained)

Bear (a little below my assumptions)

• Revenue: 7.000 million
• Net Margin: 2.5% (around its current value)
• Net Income: 175 million
• Shares Outstanding: 319.05 million (assuming a dillution of ~4.0%)
• EPS: 0.55 euros (5.05% CAGR)
• P/E: 10 (a little contraction from its current value)

From these, I’ve calculated the fair value for the base case:

And then again, I’ve used the Monte Carlo simulations to check how the estimated fair value changed as my assumptions were modified to also contain my bear and bull cases:

Using this valuation method, Mota Engil that is currently priced at 4.82 euros, seems to be fairly valued or even a little undervalued given that it’s being priced above P20 and below the Median. We can extrapolate that there’s more than 50% probability for the stock to be undervalued.

This seems to show less undervaluation than the previous DCF. However it is still an undervaluation output nonetheless.

As before, feel free to try this yourself: EPS Growth – The Fair Value Journal

EPS Scenario Returns

We can also check how the different scenarios would perform during the following years:

Historical EV/EBITDA (Weight: 20%)

Its current EV/EBITDA seems to be a little bit lower than its average over the last 10 Years. This could mean the stock is currently a little undervalued or even fairly valued. If we assume that it would go back to its historical average of 6.10 EV/EBITDA we can assume a fair value of 5.27 euros.

✍️Summary

Now that we did all the heavy work, let’s take the above and come up with the company weighted average fair value.

I basically take each valuation method used and given my confidence on the company apply a 20% or 10% discount (when to buy) and addition (when to sell) or use the Monte Carlo P10, P20, P80 and P90 values:

Feel free to make your own choices, but for me I would probably start buying below the 6.02 euros or even a little bit lower given the riskiness of the company and the high difference between the DCF output and the other valuation methods.

As always, remember that the fair value estimate has a 100% probability of being wrong and it will never be a precise number, even if it has decimals next to it 😮

Also keep in mind that fair value and market price can remain disconnected for extended periods, particularly for companies like Mota-Engil that are listed on a small and relatively illiquid market with limited analyst coverage. The gravitational pull toward intrinsic value is real, but is neither guaranteed nor timely and sometimes it takes longer than any investor’s patience allows.

Overall it seems Mota-Engil is undervalued at the current prices.

Fair Value: 7.33 euros