Cimic Group Limited

CIM Details

Award of Highway Project: Cimic Group Limited (ASX: CIM) operates in the infrastructure, resources and property markets. The market capitalisation of the company as on 19 March 2021, stood at ~$5.78 billion. As per a recent update, the company’s CPB Contractors has been selected by the Queensland Government to deliver the Bruce Highway Upgrade which is expected to generate $289 million in revenue for CPB Contractors. The project is being funded by the Australian and Queensland Governments.

FY20 Performance Update: The company reported a revenue of $11.4 billion during the period, impacted by the temporary delay in the award of new projects due to the COVID-19 pandemic. The statutory NPAT stood at ~$620 million. It declared a dividend of 60 cents per share. The net cash position was at a decent ~$190 million during the period's end. The work in hand stood at an impressive $30.1 billion.

FY20 Financial Performance (Source: Company Reports)

Outlook: The company provided FY21 NPAT guidance in the range of $400 million to $430 million. It represents an 8-16% increase on proforma underlying NPAT. The decent level of work in hand is expected to provide approximately two years’ worth of work and augurs well for the company.

Key Risks: The company is exposed to the impacts of the COVID-19 pandemic on its operations and has to maintain a decent liquidity position to mitigate the risk of any possible disruption to its business. It also operates in a sector where it has to manage workplace health and safety hazards.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: The company’s UGL division has been awarded $1.5 billion country regional network contract for the operation and maintenance of rail infrastructure for a period of 10 years. As per a recent update, the Group’s minerals processing company Sedgman, and construction company CPB Contractors have extended their presence in Queensland with contract wins of ~$100 million in revenue. As per ASX, the stock of CIM is trading below its average 52-weeks’ levels of $11.870-$28.720. The stock of CIM gave a positive return of ~39.38% in the past one year and a negative return of ~13.50% in the past one month. On a technical analysis front, the stock of CIM has a support level of ~$14.397 and a resistance level of ~$19.451. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company might trade at a slight premium to its peer average P/E (NTM trading multiple), considering the turnaround in bottom-line and a decent level of work in hand. For the purpose, we have taken peers such as Monadelphous Group Limited (ASX: MND), Seven Group Holdings Limited (ASX: SVW), Worley Limited (ASX: WOR), to name a few. Considering the valuation, significant improvement in the bottom line of the company, positive outlook and a decent amount of work in hand, we recommend a ‘Buy’ rating on the stock at the current market price of $18.120, down by 2.529% as on March 19, 2021

CIM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Austal Limited

ASB Details

Delivery of Patrol Boat to the Australian Government: Austal Limited (ASX: ASB) is engaged on shipbuilding. The market capitalisation of the company as on 19 March 2021, stood at ~$841.36 million. As per a recent update the company has delivered the ninth Guardian-class Patrol Boat to the Australian Department of Defence. The vessel was further gifted by the Australian Government to the Papua New Guinea Defence Force.

H1FY21 Financial Update: The company reported a revenue of ~$840 million during H1FY21. NPAT grew by 29% to $52.4 million when compared to the previous corresponding period. There was also an improvement in the operating cash flow to $93.5 million during the period. The Group reported a net cash position of $260.2 million during the period end and declared an interim dividend of 4 cents per share.

H1FY21 Performance Update (Source: Company Reports)

Outlook: The company has given FY21 revenue guidance of $1.65 billion, with COVID-19 delays shifting the revenue into FY22. It has forecasted an EBIT guidance of $125 million in FY21 with margin improvement in USA shipbuilding. ASB estimates the FY22 baseline revenue at $1.4 billion.

Key Risks: The company is exposed to interest rate risk from the changes in interest rates on its outstanding borrowings, as well as investments. It is also prone to foreign currency fluctuation risk on its sales and purchases.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: On 1 March 2021, the company has been awarded a US$235 million contract by the United States Navy for the design and construction of the 15^th Expeditionary Fast Transport vessel. As per ASX, the stock of ASB is trading below its average 52-weeks’ levels of $1.980-$3.860. The stock of ASB gave a negative return of ~15.03% in the past one year and a negative return of ~16.91% in the past three months. On a technical analysis front, the stock of ASB has a support level of ~$1.967 and a resistance level of ~$2.524. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company might trade at a slight premium to its peer average P/E (NTM trading multiple), considering the decent financial performance in H1FY21 and strong order book. For the purpose, we have taken peers such as GUD Holdings Limited (ASX: GUD), Electro Optic Systems Holdings Limited (ASX: EOS), Orbital Corporation Limited (ASX: OEC), to name a few. Considering the valuation, improved bottom-line & cash flow performance and key contract wins, we recommend a ‘Buy’ rating on the stock at the current market price of $2.260, down by 3.419% as on March 19, 2021.

ASB Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.