A SNAPSHOT

by Gotham Insights Team

GRUPO
EMPRESARIAL
SAN JOSÉ, S A
Grupo Empresarial San José S.A. 16/10/2018

CONTENT

0. DISCLAIMER 03

1. INTRODUCTION 04

2. METHODOLOGY 04

3. A DESCRIPTION OF GSJ’S BUSINESS INTERESTS 04

3.1 THE CONSTRUCTION BUSINESS 04

3.2 “HIDDEN”ASSETS 06

3.3 OTHER ASSETS AND TAX CREDIT 08

4. PARTICIPATORY LOAN 09

5. ASSUMPTIONS AND SENSITIVITY 10

6. SHAREHOLDER AND STOCK MARKET DATA 14

7. CONCLUSION 15

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Grupo Empresarial San José S.A. 16/10/2018

0.
DISCLAIMER
This document is provided solely in connection with the valuation of GSJ based on the information
obtained and analysed from public sources (CNMV, Group San José Annual Accounts Reports FY14-
FY17, GSJ Shareholder Meetings insights, among others). This document must not be made available
or copied in whole or in part to any other person without its author’s express written permission.
For these purposes, its author does undertake to assume any kind of liability with third parties with
regards to the information contained in this document.
This document summarizes the material findings of certain financial analysis conducted by its author
regarding GSJ and, if applicable, its affiliate companies, and it may however from time to time contain
certain information on other companies related to GSJ which should not be considered as falling within
the scope of the document.

This document is limited to matters of the information contained and obtained from public sources in
compliance with the laws applicable in the jurisdiction of Spain and does not cover the laws of any
other jurisdiction or any documents, proceedings ( judicial or otherwise) or agreements, which may be
subject to, or governed by the laws of other jurisdiction. Our review of any entities or materials not
governed by the laws applicable in the abovementioned jurisdiction, has been done with regard of
the information contained in public sources. Consequently, no reliance is given as to our review and
findings relating to any entities and materials not governed by the laws applicable in the jurisdictions
of Spain.

For the avoidance of doubt, the information reviewed for the purpose of the issuance of this document
include only that public information specifically obtained from public sources for the purpose of
preparing this document, and do not include any other documents or information relating to GSJ Group
made available from time to time to other person than its author.
Regarding the information obtained for review, we have limited our review to the scope of valuating GSJ
and should not be treated as a recommendation for investing in GSJ nor should be read as extending
by implication to any other matters.
We are not in a position to assess whether the affairs of GSJ and its affiliate companies have been
conducted in accordance with the terms of the documents and public information reviewed, nor are
we in a position to comment on the further commercial or financial implications of such documents.

This document should be read in conjunction for understanding the valuation of GSJ. This document
does not address or purport to address any details, items or matters dealt with in those other reports.
To the extend this document contains or refers to reports, memoranda, opinions or advice from any
other person, that person remains exclusively responsible for the contents of such reports, memoranda,
opinions or advice.

This document speaks solely as at the date hereof.

This document is not a legal opinion and accordingly it is not to be taken as expressing any opinion
as any legal matter, value or condition of GSJ and its affiliate companies. This document is also not a
recommendation to potential buyers to proceed to purchase or invest in GSJ and its affiliate companies.
This document is based on its author’s professional experience from a financial perspective and its
content may not be correct or accurate, the decision to proceed with any investment should be a
commercial decision from an ultimate buyer to be executed with its relevant advisors.

This document should not be treated as a substitute for specific financial and/or advice concerning
individual matters, situations or concerns to execute any kind of investment in GSJ.

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Grupo Empresarial San José S.A. 16/10/2018

1.
INTRODUCTION

Grupo Empresarial San José, SA (GSJ) is a diverse Spanish enterprise, with business lines and
holdings that include construction, development, agriculture and energy. GSJ has been listed on
the Spanish stock market since 2009, following completion of the takeover of the then listed
company, Parquesol Real Estate. As a result of that takeover and the subsequent collapse of the
Spanish property market, GSJ fell into severe financial difficulties. It was restructured in 2014,
when creditors assumed Parquesol’s assets and debt. As of 16-10-2018, GSJ’s shares were
trading at €4.66, compared with an initial flotation price of €13.51.

Perhaps not surprisingly given the group’s low capitalization, and the fact that only a minority of its
shares (30%) are held in the free float, there is no market research on GSJ and the company seldom
issues information about itself. As a result, we believe the group’s activities are poorly understood
and that an improvement in its financial position and prospects has gone largely unnoticed. This
document describes GSJ’s main business interests and assets and values them accordingly. We
conclude its stock is undervalued by between 60 and 85%.

2.
METHODOLOGY
There are two distinct parts to GSJ’s business: the construction business, which we value
according to EV/EBITDA multiples, and a range of other assets (described below), for which
we establish a minimum and maximum potential value. The maximum is a discounted cash flow
valuation, assuming the assets are fully developed over a 10-year period.

Sources: public information, CNMV, Grupo San José Annual Reports (2014,2015,2016,2017),
GSJ General shareholders meetings insights, Mazard's Construction Sector reports.

3.
A DESCRIPTION OF GSJ’S BUSINESS INTERESTS
3.1 THE CONSTRUCTION BUSINESS
Construction. Construction is GSJ’s principal activity, accounting for 85% of revenues in
the construction business overall and 70% of EBITDA. Half of these revenues are generated
domestically and half internationally, in Germany, France, Portugal, Romania, Malta, Argentina,
Chile, Peru, Colombia, Mexico, Panama, Paraguay, Uruguay, the United States, India, Timor,
Cape Verde and the United Arab Emirates. Some 90% of activities are focused on the most
profitable segments of the market – residential and non-residential construction in the private
sector. In the two years to end-2017, revenues grew at an average annual rate of 12%,
boosting profit ratios. In the six months to end-June 2018, the division’s construction backlog
grew by more than 30%.

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Real estate and urban development. Historically an important business line for GSJ,
revenues fell between 2015 and end-2017 as the company focused its attention elsewhere
after restructuring. Now, however, GSJ is reviving this business with the development of
1,100 homes at the Nuevavista Condominium in Lima, Peru. GSJ has previously developed
homes in the same district, and is thus familiar with the potential profit margins of around
35%. Given these margins, we believe the further development of GSJ’s real estate and urban
development business will be an important driver of the group’s EBITDA growth (see Table
4). At end-2017, it owned 1.8 million m2 of land, 71% of which qualified as buildable. Of this
area, 723,140 m2 are in Spain, 20,000 m2 are in Peru and 1 million m2 are in Argentina.

The GSJ board commissions annually an independent valuation of its land inventory and
property investments. At end-2017, these were estimated to be worth €55 million more than
the book value and €83 million more than the fair market value, indicating a latent capital gain
of €138 million. (Note, these figures exclude the holdings of DCN, discussed later.)

Energy. This accounts for 2% of revenues. It is a stable and profitable business, with an
average EBITDA margin over the past two years of 32%.

Concessions and services. This business accounts for 7% of the construction business’s
overall revenues. Its own revenues grew by 20% over the past two years.

Table 1 shows the accumulated quarterly revenue of each business line in 2016 and 2017,
and the first half of 2018.

Table 1. Construction business accumulated quarterly revenues, by business line

(€ millions)

Mar Jun Sept Dec Mar Jun Sept Dec Jun

16 16 16 16 17 17 17 17 18

Construction 108 229 379 537 128 291 432 601 283

Real estate
and urban 8.2 11 13.4 16 2 3.4 5 6.7 1.6
development

Energy 2.6 5.2 8 10 3 6 8.8 11.1 4.7

Concessions and
10.6 19 28.6 39.4 10.3 23.5 35.3 47.7 24.7
services

Others 3.3 6 9.4 10.7 3 7.6 12.2 16.2 15.3

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Grupo Empresarial San José S.A. 16/10/2018

3.2 HIDDEN ASSETS

Besides its construction activities, GSJ has a number of what can be regarded as hidden
assets, in that there is no market research on them. Several have significant value- creation
potential.

DCN

DCN, a property developer, has the option to buy and develop 60% of the land earmarked
for Madrid Puerta Norte, the biggest real estate development in Europe today and similar in
ambition to La Défense in Paris in the 1960s, Canary Wharf in London in the 1980s and,
more recently, Potsdamer Platz in Berlin. Plans for the 2,680 million m2 site include residential
buildings, commercial buildings and a new railway station for fast connections to Madrid
airport and other Spanish cities. The area covered by DCN’s option includes the prime site,
next to the Chamartin railway station, designated for a new financial district. GSJ has a 24.5%
stake in DCN and the option to acquire a further 2.5%. The remaining 75.5% of shares are
owned by banking group BBVA.

The project was conceived more than 25 years ago and the plans have been modified
repeatedly. The latest draft proposal has now been agreed by all interested public and private
parties, including the city council, which must now give formal approval to the scheme. Initial
approval took place on September 20. Thereafter, the approval process is likely to take another
four to five months to complete. DCN then intends to exercise its option to buy and develop
the site.

The terms of the current proposal are more favourable to DCN than the previous proposal in
2014, as shown in Table 2. There are two noteworthy changes. First, the costs of building
the supporting infrastructure will now be assumed by public authorities rather than by DCN
as the developer. Second, the amount of buildable land has been reduced. The effect of the
reduction, which mainly affects the area of land set aside for residential use, is to bring down
the value of the buildable land by €600 million, assuming a value per square metre of about
€2,500. At the same time, however, the charges payable by DCN have been reduced by far
more – €1.025 billion.

In this scenario, the value of the land net of charges is €2.48 billion. GSJ’s share of this value
(24.5%) is about €600 million, or €9.35 per share given the current number of shares. Once
developed, the asset could have a gross value for GSJ of close to €1.05 billion, or €16.15 per
share.

In addition, GSJ has the option to take on the construction of the entire project, giving its core
business huge growth potential over the next decade.

(1)
Three public authorities are involved: The City Council, the Community of Madrid, and the Ministry of
Infrastructure

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Grupo Empresarial San José S.A. 16/10/2018

Table 2. Comparison of proposals for Puerta Madrid Norte1

Current proposal
2014 proposal Difference %
(estimate)
Land use, m2
(Total area = xxx)

Offices 1,495,316 1,490,000 5,316 0%

Residential 1,495,316 1,085,570 409,746 -27%

Other 286,059 254,430 31,629 -11%

Total buildable 3,276,691 2,830,000 446,691 -14%

Train station 0 150,000

Remaining buildable 3,276,691 2,680,000 596,691 -18%

DCN (60%) 1,963,515 1,698,000

Less disposals 409,746 169,800

Net 1,767,163 1,507,200 259,964 -14.7%

DCN land use, m2

Offices 883,582 800,000

Residential 883,582 600,000

Other 0 107,200

1,767,164 1,507,200

Land value to DCN, €

Average €/m2 2,000 2,500

Gross valuation 3,534,328,000 3,768,000,000

Charges:

Land payment 1,080,000,000 1,280,000,000

Other charges 1,025,000,000 0

Total charges 2,105,000,000 1,280,000,000

Land value, net of 1,429,328,000 2,488,000,000

charges
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La Tablada

La Tablada is a densely populated city in the municipality of La Matanza, which is part of the
Greater Buenos Aires metropolitan area. Here, GSJ owns 1,222,665 m² of land earmarked for
what will be the largest private urban development scheme in Argentina in the past 50 years
– the Parque Lagos Urban Transformation Project. Some 20,500 new homes will be built, as
well as commercial property.

Existing housing stock (not new-build) in the area, which borders the city’s central districts,
currently fetches more than $1,600/m2, compared with $700/m2 a decade ago. These are the
key figures:

• Plot: 1,222,665 m²
• Constructed residential floor area: 1,635,946 m²
• Constructed commercial floor area: 221,775 m²
• Total constructed surface 1,857,721 m2

GSJ specializes in the development and construction in large Latin American cities of the type
of housing planned for Parque Lagos – that is, small, low-cost units (about 80-85 m² and
costing around $400/m2) such as the Nuevavista Condominium referred to above. La Tablada
has extraordinary value potential for GSJ. Even the fire-sale value of the company’s land there
is currently worth between €100 million and €150 million. GSJ’s intention is to develop this
asset once the economic situation in Argentina improves, thereby minimizing its financial risk.

Carlos Casado

Founded in 1909, Carlos Casado is one of Latin America’s foremost agricultural companies,
listed on the Buenos Aires and New York stock exchanges since 1958 and 2009 respectively.
GSJ has been a majority owner of the company since 2007, with a 50.4% holding.
One of its main assets is 220,000 hectares of land in the Chaco region of Paraguay, which
borders Argentina, Bolivia and Brazil. The land is used for cattle rearing (20,000 livestock)
and soybean and corn production (4,000 hectares).

3.3 SMALLER ASSETS AND TAX CREDIT

GSJ also has a number of less significant assets. These include:

• Comercial Udra. Through various companies – Arserex, Outdoor King, Running King,
Athletic King and Trendy King – Comercial Udra distributes internationally prestigious
sports and fashion labels such as Arena, Teva, Hoka, Diadora, Hunter, Fred Perry and
Dr. Martens.
• Panamerican Mall. Shopping centres in Argentina.
• Other minority interests. These include Bodegas Altanza, SA (wine producer),
Unirisco SCR, SA (venture capital), Filmanova, SA (film production company),
Editorial Ecoprensa, SA (publisher of Spain’s El Economista) and Oryzon Genomics,
SA (publicly traded biotech company).

Finally, GSJ has a tax credit of €470 million, arising mainly from losses incurred following the
2014 restructuring. It will therefore make fiscal savings of €118 million in total over the next
15 years.
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4.
PARTICIPATORY LOAN

GSJ has an outstanding participatory loan of €100 million from shareholders, raised in 2014 when
the company was left with negative equity following its restructuring. It matures end-October,
2019. The terms of the loan, which are key to the valuation of GSJ, are as follows:

• Fixed interest of 2% for the first two years, rising to 3% in years three and four and 4%
in year five.
• Bullet payment at five years.
• Any part of the loan not repaid at maturity will be converted into GSJ shares at a price
equal to the average share price during the month prior to maturity, with an upper limit on
the value of new shares issued of 35% of the company’s current share capital.
• The price at which any unpaid proportion of the loan will be converted to equity will be
the average closing price of the stock in the 20 trading days prior to end-October, 2019.
There is a minimum price of €5.05 per share, however.

We assume that the company directors intend to capitalize both the full loan and accrued interest
when the loan matures. This will amount to €113.8 million, which would mean the issue of a
maximum of 22.7 million new shares were they to be issued at the minimum price of €5.05 per
share.

Table 3 shows the number of new shares that would be issued relative to conversion price of the
participatory loan. As we will show later, the price at which new shares are issued will not greatly
affect the value of the group’s shares.

Table 3. Number of new shares issued relative to the conversion price of the participatory
loan

Conversion Number of new shares Total number of shares

price per share issued after conversion

5.05 22,537,934 87,564,017

6.00 18,969,428 83,995,511
7.00 16,259,509 81,285,592
8.00 14,227,071 79,253,154
9.00 12,646,285 77,672,368
10.00 11,381,657 76,407,740
11.00 10,346,960 75,373,043
12.00 9,484,714 74,510,797
13.00 8,755,120 73,781,203
14.00 8,129,755 73,155,838
15.00 7,587,771 72,613,854

After the loan is capitalized, GSJ will have positive net debt, putting it in a strong financial
position to invest in its businesses – particularly DCN and the development of Madrid Puerta
Norte.
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5.
ASSUMPTIONS AND VALUATION

Our valuations are based on certain assumptions for both the construction business and GSJ’s
other assets.

The construction business

Our valuation for the construction business includes or assumes the following:

• Strong cash generation as, since 2016, the construction business has been a strong
cash generator. This is likely to continue as the business has no planned investments
and considerable land reserves.

• Construction margins similar to those in 2017.

• Revenue growth of 10% over the next three years. Our estimate of revenue growth is
conservative, according to market evolution, and lower than that recorded in the past
two years. It is supported by portfolio growth and by the plans described above to
generate revenue growth from the group’s real estate and urban development business.

• The sale of homes in the Nuevavista Condominium in Lima from July 2018 to 2020 at
a profit margin of 35%. This is in line with previous sales. The valuation also takes into
account several small property developments currently under way in Spain.

• A progressively lower tax rate as previously loss-making subsidiaries return to profit.

The valuation does not, however, include tax credits.

• Estimated EBITDA, as shown in Table 4. (It separates out the figures for the real estate
and urban development division in order to demonstrate its importance in driving
future prospects.)

• A sensitivity analysis of the conversion price of the participatory loan on share value,
relative to a range of EV/EBITDA multiples (Tables 5 and 6).

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Table 4. Profit and loss account for GSJ’s construction business, 2015-2020 € millions

2015 2016 2017 2018 E 2019 E 2020 E

All business lines

Income 536.0 613.0 683.0 751.3 826.4 909,073

EBITDA margin 8.2% 7.5% 6.8% 7.2% 7.8% 7.9%

EBIDTA 43.8 45.9 46.4 54.1 64.2 71.8

Real estate and

urban development 10.2 6.5 1.7 3.0 8.0 10.0
EBITDA**
EBIT 30.7 25.0 31.0 36.8 45.2 50.9

Gross profit 10.6 19.7 22.3 31.8 41.2 49.9

Net profit 7.2 8.0 12.3 22.3 33.0 40.4

Net debt 167.2 97.1 66.7 42* -65.0 -136.8

Backlog 1.835 1.889 1.630 1.886*

(*)
reported 1st half
(**)
Red figures represent the specific EBITDA of real estate and urban development business line

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Table 5. Sensitivity analysis of share value relative to the conversion price of the
participatory loan and EBITDA multiples in 2018

Participatory loan, conversion price per share, €

5.05 6.00 7.00 8.00 9.00 10.00 11.00 12.00

EBITDA
multiple**
4 2.47 2.58 2.66 2.73 2.79 2.83 2.87 2.90

5 3.09 3.22 3.33 3.41 3.48 3.54 3.59 3.63

6 3.71 3.86 3.99 4.09 4.18 4.25 4.31 4.36

7 4.32 4.51 4.66 4.78 4.87 4.96 5.02 5.08

8 4.94 5.15 5.32 5.46 5.57 5.66 5.74 5.81

Table 6. Sensitivity analysis of share value relative to the conversion price of the
participatory loan and EBITDA multiples in 2019

Participatory loan, conversion price per share, €

5.05 6.00 7.00 8.00 9.00 10.00 11.00 12.00

EBITDA
multiples**
4 3.68 3.83 3.96 4.06 4.14 4.21 4.27 4.32

5 4.41 4.60 4.75 4.87 4.97 5.05 5.12 5.18

6 5.14 5.36 5.54 5.68 5.80 5.89 5.97 6.04

7 5.87 6.12 6.33 6.49 6.62 6.73 6.82 6.90

8 6.61 6.89 7.12 7.30 7.45 7.57 7.68 7.77

(*)
figures in red show the most probablest scenarios
(**)
the average multiple for the European construction companies was 8.7x in 2017. Source: "Is now the time
for the alternative valuation methods for the construction industry?". Mazard Sept, 2017

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Other assets

We estimate a minimum and maximum value for GSJ’s other significant assets. The minimum is
equivalent to the price we estimate could be achieved currently were the assets to be disposed
of in a fire sale. In the case of Carlos Casado, the minimum price is the current market value. The
maximum reflects the DCF over a 10-year period assuming the assets are fully developed. It takes
into account the book value and assumes the shareholders’ loan is capitalized at €5.05 a share.
The valuations do not include tax credits, and are net of tax (25% in Spain and 35% in Argentina).

DCN

GSJ’s 24.5% holding in DCN is worth:

€m € per share
Minimum 340 3.91

Maximum 816 9.40

The minimum value conservatively assumes that the land could be sold for €2,000/m2. This is a
discount of 20% on its estimated current value.

The maximum value assumes average construction costs of €1,300/m2 and an average selling
price of the residential and commercial units of €5,000/m2. The price of €5,000/m2 is conservative
if we consider recent comparable transactions in similar areas of Madrid.
La Tablada

€m € per share
Minimum 103 1.18

Maximum 924 10.62

The minimum value represents our estimation of the value of the land in a fire sale, that is, $100/
m2. In 2015, GSJ received an offer for its land of $200 million, which it rejected.

The maximum value assumes an average selling price for the houses of $1,300/m2 and construction
costs of $400/m2. Prices of existing housing stock (not new-build) in this part of Buenos Aires are
in the region of $1,600/m2, and construction costs are around $360/m2.

We have converted dollars into euros at a rate of 1.15 $/€.

CARLOS CASADO

As of August 2018, GSJ’s 52% stake in Carlos Casado was worth:

€m € per share
20 0.23

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6.
SHAREHOLDER AND STOCK MARKET DATA
Since its listing on the Madrid stock exchange in 2009, GSJ has had 65,026,083 issued shares.

The main shareholders are:

Jacinto Rey Gonzalez (GSJ president) 48.3%

The Avalos family (company founders) 21.0%

Board members 1.0%

Executive managers 1.0%

Free float 28.7%

Shares data:
Ticker: GSJ.MC

Share price on Oct, 16 €4.66

Market cap €303.2 million

Average daily volume (52 weeks) 140,951 shares

Highest and lowest price across 52 weeks €6.09 - €3.04

200-day moving average €4.00

Advanced chart:

14.13

13.51
18

19

19

19
20

20

20

20
0.

1.

6.

2.
.1

.0

.0

.1
16

01

01

31

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Grupo Empresarial San José S.A. 16/10/2018

7.
CONCLUSION

As this document explains, we believe GSJ to be considerably undervalued. Its current share price
does not reflect the value of the various business lines within construction, let alone of its other
assets, including DCN.

Table 7 summarizes what we believe to be a more realistic valuation of the shares, based on our
understanding of the company and the assumptions explained in this document. It assumes the
shareholders’ loan is capitalized at €5.05 per share, indicating that a maximum of 22.7 million new
shares would be issued in 2019.

Table 7. Assessment of GSJ’s true value

Minimum Medium* Maximum

Construction business 3.71 4.70 5.68

Assets 5.32 8.06 20.35

Tax credit 1.00 1.37 1.37

Total 10.03 14.13 27.40

The medium represents a mid-point between the minimum and maximum for Constuction business, 0% of potential
(*)

value for the assets and just 50% of DCN potential value

Even the most conservative valuation makes this an extraordinary investment opportunity over
the next one to three years. GSJ is a mature company with strong cash generation and no debt,
and it has the financial muscle to grow its business. In addition, its performance depends upon
relatively few external factors such as currency risk. Hence, it is a low-risk investment, with the
potential to deliver returns of between 250% and 685% over the next 12 to 36 months.

The group currently has a low profile, but we believe this will soon change. Given the prominence
of the Madrid Puerta Norte project in the Spanish media as it approaches final approval, the value
of DCN and hence of GSJ will surely come under scrutiny by a growing number of analysts and
investors. Once they better understand the company and its holdings, market valuations are likely
to rise.

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