CIMIC – Buy

Cimic Group

The company is currently authorised to purchase up to 32,372,676
shares under the buy-back. The remaining shares that may still be
bought under the buy-back would be up to 25,659,911.

Support at $20 is now building and the short-term indicators have turned positive.

CIMIC – 1H20 Earnings

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.

We see value at $21 – $22 per share.

CIMIC – Buy

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.

CIMIC reports earnings on 30 July.

CIMIC Group

Cimic Group

CIMIC provided no update on 2020 guidance, but reported its 1Q20 result with revenue of A$3.3bn, down 3% on the same time last year. NPAT was down 8% to $166mn.

We forecast 2020 full year NPAT to be in the range of A$700 – A$750mn.

Buy above $22.50 support.

Since making the above post, CIMIC has now rallied to $25.50 and we see further upside in the stock.

CIMIC – Dividends Set to Resume

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%.

 

CIMIC Group – Exit Cost From the Middle East

 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 – Value to Emerge

Cimic Group is under Algo Engine sell conditions and following the recent 1H19 earnings, the stock has sold off over 20%.

Mining profits were up +26% but construction-related profit was down 15%. The broad thematic around the CIMIC business remains attractive and we continue to monitor for an approaching entry point.

Note: Short-term indicators are now turning positive.

 

CIMIC – Up to 10% Share Buyback

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 Reports 1H19 Earnings

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%.

 

 

CIMIC – Valuation Review

Cimic Group is under Algo Engine sell conditions and with the group reporting 1H19 earnings later this month, we will be looking closely at the underlying growth trends.

We expect guidance to be at the top end of the $800-$840mn range, with mining related income to be strong, and construction to be flat.

CIM’s exposure to resources and infrastructure growth should lead to FY20 Revenue of $19bn, EBIT $1.3bn and underlying profit growth of 5%+.

CIM trades on a 3.8% forward yield, based on FY20 DPS growth from $1.65 to $1.75.