Cimic Group delivered a soft 1H20 result that was below consensus expectations. 1H20 NPAT of A$317mn, down 14% on the same time last year.
Work-in-hand increased to A$38bn and the project pipeline for 2020 and beyond has now increased by 10% to $540bn plus.
CIMIC also announced an agreement with Elliott Advisors (UK) for the sale via a JV for 50% of Thiess, the world’s largest mining services provider. Providing joint control of Thiess to CIMIC and Elliott.
The transaction will help strengthen the CIMIC balance sheet and provide flexibility for CIMIC to resume a share buyback next year.
Cimic Group we are often cautious buying stocks that are under primary Algo Engine sell conditions. However, CIMIC may have found support at $21 and the short-term interim indicators have turned positive.
CIMIC focuses on infrastructure projects in Australia, New Zealand, and Asia. The balance sheet has been repaired following the restructuring and exit of their middle eastern businesses.
In general, governments are pushing through infrastructure projects with greater priority, as a way of stimulating the economy.
We continue to see long-term value in CIMIC, supported by structural tailwinds within the infrastructure sector. The company recently announced they’re writing off 1.8bn and exiting their Middle East business to focus on Aust, NZ, and Asia.
Yesterday’s profit release was in line with guidance at $800m of underlying NPAT. FY20 is forecast to see between 1 – 6% growth and a new guidance range of $810-850m has been provided.
Dividends are expected to resume in FY20 and investors should be positive on the strong Q4 cash flow. CIM is trading on 11x forward earnings and a forward dividend yield of almost 6%.
ASX:CIM will take a one-off impact of ~$1.8b in FY19 from the impairment of the entire BICC division. This represents all of CIM’s exposure in relation to BICC, including shareholder loans and financial guarantees.
FY19 underlying NPAT is expected to be $800m, excluding the impact from the BICC writedown. The company will suspend its next dividend payment which saves around $270mn.
CIMIC’s middle east exposure has been a negative overhang for the past 10 years and we see this step as an important de-risking outcome for investors. Going forward, CIMIC will focus on Australia, New Zealand, and Asian business opportunities. We remain bullish on the macro trends supporting the infrastructure sector.
Cimic Group is under Algo Engine sell conditions since forming a lower high back in February at $50.
A weak first-half earnings result has seen the sell-off accelerate in the past few days. We’d normally give this name a wide berth, whilst we wait for confirmation of earnings and in particular, free cash flow improvements.
However, we draw your attention to the “up to 10%” share buyback which the company will recommence in August.
Cimic Group reports 1H19 earnings tomorrow and the market is looking for NPAT of $390m.
Full year NPAT should maintain within guidance at $790m to $830m.
The CIMIC share price has been trading at the lower end of the valuation band following allegations of creative accounting. CIMIC has pushed back against the claim and maintained that their accounts meet the required auditing standards.
We’ll wait to see what’s in tomorrow’s result, but we continue to like the industry thematic in which CIMIC operates. We expect CIMIC to report a strong net cash position of $1.4bn+.
Based on FY20 earnings we have CIMIC trading on a forward yield of 4%.