Company Overview: CIMIC Group Limited (ASX: CIM) is an engineering-led construction, mining, services, and public private partnerships company that offers services across infrastructure and resources projects. CIMIC Group Limited is comprised of construction business CPB Contractors, mining and mineral processing companies Thiess (50% investment) and Sedgman, services specialist UGL, and public private partnerships arm Pacific Partnerships. The company was listed on ASX on 11 December 1962.
CIM Details
Key Performance Highlights for 9MFY21: Despite COVID-19 impact in New South Wales, Victoria, and New Zealand, CIM reported decent operational performance in the first nine months of FY21 (9MFY21). Some of the key highlights of 9MFY21 are as follows:
- Rise in Revenue: For the nine months ending 30 September 2021, CIM reported total group revenue of $10.9 billion, up 9.2% on pcp, supported by the growth achieved in Australian Construction and Services.
- Award of New Work: During 9MFY21, the company was awarded $16 billion of new work, and its work in hand position grew to $35.1 billion. In Q3FY21 alone, the company was awarded $5.6bn of new work.
- Decline in Net Finance Cost: Due to lower average debt level and decreased use of working capital instruments, the company’s net finance cost was reduced by 23.7% to $98.2 million.
- Slight Reduction in NPAT: NPAT for 9MFY21 stood at $303.1 million, down by 1.1% on pcp.
FY20 Results Highlights: During FY20, the company’s top line was impacted by the COVID-19 pandemic as it caused a temporary delay in the award of new projects and slowdown of revenues across both domestic and overseas activities. Statutory revenue for FY21 stood at ~$11.4 billion, down from ~$14.7 billion in FY19. Statutory NPAT for FY20 stood at $620.1 million, up from the loss of $1,039.9 million in FY19.
5-Year Financial Summary (Source: Analysis by Kalkine Group)
Decent Dividend History: CIM has a decent track record of rewarding shareholders via dividends and buybacks. Notably, from 2016 to 2020, CIM has returned $1.7 billion to its shareholders in the form of dividends and $0.7 billion in share buybacks. For H1FY21, the company has paid an interim dividend of 42 cents per share (20% franked). At the CMP of $19.41, the company’s annual dividend yield stood at 5.22%, higher than the five-year average dividend yield of 2.79%.
Dividend Trend (Source: Analysis by Kalkine Group)
Key Metrics: For H1FY21, CIM reported an EBITDA margin of 10.1%, slightly up from 10% in H1FY20. PBT margin for H1FY21 stood at 5.4%, in line with pcp. ROE for H1FY21 stood at 20.7%, up from 14.2% in H1FY20. NPAT margin for H1FY21 stood at 4.5%, slightly down from 4.7% in H1FY20. Current ratio for H1FY21 stood at 1.14x, down from 1.25x in H1FY20. Cash Cycle for H1FY21 stood at 93.6 Days, down from 186 days in H1FY20.
Liquidity Profile (Source: Analysis by Kalkine Group)
Top 10 Shareholders: The top 10 shareholders together form around 81.41% of the total shareholding, while the top four constitute the maximum holding. HOCHTIEF Australia Holdings Ltd. and The Vanguard Group, Inc. are holding a maximum stake in the company at 78.58%, and 0.75%, respectively, as also highlighted in the chart below:
(Source: Analysis by Kalkine Group)
Award of New Contracts:
- Secured Wahana Renewal Contract: On 3rd November 2021, CIM announced that its mining and mineral processing company, Thiess, has secured a three-year $A220 million contract renewal for PT Wahana Baratama Mining’s (Wahana) coal mine in South Kalimantan, Indonesia. Under the contract, the company will provide full mining services for Wahana.
- Secured Contract for $368mn Sydney CBD Tower: On 2nd November 2021, CIM announced that its construction business, CPB Contractors, has been selected as the builder for the new 39-storey premium commercial development. It is expected that this contract will generate $368 million for CPB Contractors.
- Awarded Northeast Link PPP Contract: On 28 October 2021, CIM’s companies including, Pacific Partnerships, CPB Contractors, and Ventia, along with other members of the Spark consortium have been awarded Northeast Link PPP contract by the Victorian Government. It is expected that the contract will provide CIM revenue of $3.8 billion.
Ventia IPO Update: On 26 October 2021, CIM lodged a prospectus with AISC for the initial public offering (IPO) of ordinary shares in Ventia Services Group Limited (Ventia). The reason behind the IPO is to raise new capital to repay debt and provide Ventia with access to capital markets. Further, the IPO will provide Ventia with the financial flexibility to pursue further growth opportunities. Under the IPO, the company is planning to raise $1.1 to $1.2 billion through the issue and sale of 382 to 399 million shares.
Key Risks:
- COVID-19 Uncertainties: The uncertainty regarding the COVID-19 related shutdowns still prevails. Further, the associated restrictions of the pandemic could cause a delay in the award of new projects and impact the availability of skilled labour, which could impact the company’s performance.
- Foreign Currency Risk: The company is exposed to the risks related to the impact of foreign exchange rate movements as it could impact the company’s financials.
Outlook: Looking ahead, the company is focused on executing its strong level of work to generate cash flow and returns. Currently, the outlook for the company’s core markets is positive, supported by the economic recovery from the pandemic, and various stimulus packages announced by the Governments in core construction and services markets. For FY21, the company expects its NPAT to be in the range of $400 million-$430 million.
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)
Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: Over the last three month, the stock has been corrected by ~4.13% and is currently trading lower than the average 52-week price level band of $16.86 - $27.510. The stock has been valued using P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight premium to its peers, considering the positive outlook for CIM’s core markets and award of recent contracts, and pipeline of work. For the purpose of valuation, peers such as Service Stream Ltd (ASX: SSM), Monadelphous Group Ltd (ASX: MND), Downer EDI Ltd (ASX: DOW), etc., have been considered. Considering the company’s rising revenue, award of new contracts, expected benefits of numerous stimulus packages announced by the Governments, positive market outlook in the long run, current trading level and valuation, we give a “Buy” rating on the stock at the current market price of $19.41 as on 4 November 2021, 10:40 AM (GMT+10), Sydney, Eastern Australia.
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CIM Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.
Technical Indicators Defined:
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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