CIMIC Group Limited

CIM Details

Class Action Proceedings: CIMIC Group Limited (ASX: CIM) mainly provides construction, mining and operation and maintenance services to the infrastructure. The market capitalisation of the company stood at $6.14 Bn as on 22^nd September 2020. As per the recent quarterly rebalance of S&P/ASX Indices, the company has been removed from the S&P/ASX 100 Index, which became effective on 21^st September 2020. In another update, the company notified that it has been served with a Class Action proceeding filed in the Victorian register of the Federal Court on 24 August 2020. The company added that the claim is brought on behalf of some shareholders who bought shares in the period between 7 February 2018 and 22 January 2020. However, the company denied the claim and will defend the proceedings.

Secured New Construction Contracts: In the month of August 2020, CIMIC Group company CPB Contractors has secured contracts of $107 million in India and Australia. In India, the company CPB Contractors has secured two building contracts, which include Hindu Heritage Experience Centre and Nita Mukesh Ambani Junior School (DAIS). In Australia CPB Contractors and its subsidiary Broad Construction have been presented contracts for building and infrastructure projects including Aspley State High School and Calder Park Signalling.

Resilient Key Margins: For the half-year ended 30^th June 2020, the company reported revenue amounting to $6.2 billion, reflecting a fall of $0.8 billion from 1H FY19. NPAT for the period amounted to $317 million. The company recorded a strong operating profit, PBT and NPAT margins of 8.6%, 6.9% and 5.1% respectively, which was supported by a mix of activities and cost-efficiency measures. The company ended the half-year with net debt and cash balance of $1.3 billion and $64 million, respectively.

Financial Summary (Source: Company Reports)

Outlook: Despite the impact of COVID-19, the company is optimistic about the business outlook. In addition, the company’s 50:50 investment partnership Ventia finished its acquisition of Broadspectrum on 30 June 2020. The combined entity is likely to generate annual revenue of over $5 billion. The company has scheduled to release its Q3 FY20 results on 21^st October 2020.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of CIM gas corrected 13% and 21.14% in the last one and three months, respectively. Resultantly, the stock is trading slightly below the 52-week low-high average of $11.870-$35.750, respectively. On a technical front, the stock of CIM has a support level of ~$18.073 and a resistance level of ~$23.969. We have valued the stock using the P/E multiple based illustrative relative valuation method. For the purpose, we have taken peers such as Aurizon Holdings Ltd (ASX: AZJ), Downer EDI Ltd (ASX: DOW), Fletcher Building Ltd (ASX: FBU), to name few, and arrived at a target price of low double-digit upside (in percentage terms). Therefore, considering the recent winning of new contracts, resilient margin, positive outlook, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $19.420 per share, up by 0.103% on 22^nd September 2020.

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

Vicinity Centres

VCX Details

Improvement in Portfolio Quality: Vicinity Centres (ASX: VCX) is involved in investment, management, and development of the property. The company is also in the leasing and funds management business. The market capitalisation of the company stood at $6.42 Bn as on 22^nd September 2020. During 1H FY20, the company continued to improve its portfolio by mainly divesting three non-core assets for a 0.4% discount to their combined book values. For the year ended 30^th June 2020, the company reported a statutory net loss after tax of $1,801.0 million against statutory net profit after tax of $346.1 million, due to impacts of COVID-19. Funds from operations (FFO) for the year stood at $520.3 million as compared to $689.3 million in FY19. The company has decided not to pay a final dividend for FY20 due to the uncertain impacts of COVID-19 and the distribution per security for FY20, which stood at 7.7 cents.  During the year, the company strengthened its balance sheet via institutional placement of $1.2 billion and securities purchase plan of $32.6 million.

Key Financials (Source: Company Reports)

Outlook: The company seems to be well-placed for long-term growth. In addition, the company believes that it is in a decent position to capitalise on the market and consumer changes over time on the back of its strong data analytics capability, well-located market-leading destinations, as well as the embedded mixed-use opportunities. The company has scheduled to conduct its 2020 Annual General Meeting on 12^th November 2020.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company is committed to its strategy of market-leading destinations, which is likely to deliver returns for investors over the medium to long term.  In the past three months, the stock of VCX has corrected 5.37%. As a result, the stock is inclined towards its 52-week low level of $0.905. On a technical front, the stock of VCX has a support level of ~$1.245 and a resistance level of ~$1.464. We have valued the stock using the P/E multiple based illustrative relative valuation method. For the purpose, we have taken peers such as BWP Trust (ASX: BWP), Charter Hall Retail REIT (ASX: CQR), GPT Group (ASX: GPT), to name few, and arrived at a target price of low double-digit upside (in percentage terms). Thus, considering the strengthened balance sheet, decent position for long-term growth, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $1.360 per share, down by 3.546% on 22^nd September 2020.

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

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