Middle East Decarbonization And Green Hydrogen Will Fuel EPC Progress

Key Takeaways

• Strategic pivot toward low-carbon and service contracts is boosting higher-margin, diversified revenue streams and supporting profitability improvements.
  
• Strengthened client relationships, operational excellence, and global expansion are enhancing project win rates and ensuring more stable, recurring earnings.
  
• Ongoing project risks, client concentration, and overexposure to hydrocarbons may threaten profitability and stability amid growing competition and the global energy transition.

Catalysts

An engineering and construction company, designs and manages industrial plant projects worldwide.

• A record-high order backlog (€13.1 billion) and a robust, high-quality pipeline (€72.3 billion), driven in particular by significant energy infrastructure and decarbonization projects in the Middle East and emerging markets, indicate likely sustained revenue growth as global energy demand and industrial investment in these regions continue to expand.
  
• Técnicas Reunidas' successful strategic shift into services and low-carbon business lines-evidenced by major new contracts in green hydrogen, ammonia, and engineering services (with margins above 30%)-is establishing new, higher-margin revenue streams that are poised to improve overall net profitability and drive margin expansion in coming years.
  
• Growing trust from industry leaders and repeated bids/invitations on mega-projects highlight strengthening client relationships and franchise value, supporting visibility for recurring revenue and reduced top-line volatility over the medium term as energy transition capital expenditure accelerates.
  
• Expansion of the specialized engineering workforce, geographic footprint, and partnerships (notably in Saudi Arabia and with firms like Sinopec and Thyssenkrupp) positions Técnicas Reunidas to directly capture rising demand for technically advanced EPC solutions and digitalization-positively impacting project win rates and long-term earnings growth.
  
• Consistent operational improvements, including a focus on digitalization, project risk mitigation, and disciplined commercial selectivity, are translating into record EBIT and improved margins; these trends are likely to further enhance earnings quality and resilience as the industry increasingly demands reliable, integrated EPC execution.

Técnicas Reunidas Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Técnicas Reunidas's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.1% today to 3.5% in 3 years time.
• Analysts expect earnings to reach €188.9 million (and earnings per share of €2.32) by about August 2028, up from €106.1 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €216 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.4x on those 2028 earnings, down from 15.4x today. This future PE is lower than the current PE for the GB Energy Services industry at 15.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.0%, as per the Simply Wall St company report.

Técnicas Reunidas Future Earnings Per Share Growth

Risks

• Persistent project execution risks and contract disputes, especially in the upstream and refining segments (where legacy contracts have already dragged profit margins), could continue to weigh on net margins if further cost overruns or claim settlements arise.
  
• Heavy reliance on the Middle East and a few large clients for new awards and backlog leaves revenues exposed to regional volatility, concentrated client risk, and cyclical downturns in oil, gas, or petrochemical investment.
  
• Despite recent wins in low-carbon and energy transition projects, Técnicas Reunidas' business mix remains heavily focused on traditional hydrocarbons, exposing long-term earnings to declining fossil fuel demand and stricter global decarbonization regulations.
  
• Margin expansion depends on rapid and effective scaling of the new services business; any failure to sustain high-margin services growth versus traditional EPC could cap or erode future profitability and cash conversion.
  
• Industry-wide intensifying competition-both from major global EPC companies and new regional entrants-could drive price compression, tighter contract terms, and higher balance sheet risk, threatening overall earnings quality and financial stability.

Valuation

• The analysts have a consensus price target of €22.537 for Técnicas Reunidas 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 €25.5, and the most bearish reporting a price target of just €16.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €5.4 billion, earnings will come to €188.9 million, and it would be trading on a PE ratio of 12.4x, assuming you use a discount rate of 10.0%.
  
• Given the current share price of €20.9, the analyst price target of €22.54 is 7.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.