Stocks’ Details

CIMIC Group Limited

Key Highlights on BICC Strategic Review: CIMIC Group Limited (ASX: CIM) is engaged in mining, construction & mineral processing across the infrastructure, property and resources markets. On 24^th January 2020, the company announced that it has completed a broad strategic review of BIC Contracting, wherein it commenced a confidential M&A process. After the assessment, the company has decided to exit the Middle East region and to focus its resources & capital distribution on growth opportunities. The company will recognise a one-off post-tax impact of ~$1.8 billion in 2019 and anticipates a cash outlay net of tax of ~$700 million during 2020.
 
CIMIC Group’sUGL Obtains $180m in Mining Sector Contracts: CIMIC Group’s company, UGL has recently secured contracts of ~$180 million to deliver shutdown, maintenance and project services in the mining sector and to deliver multi-discipline services for Alcoa across the Wagerup and Pinjarra sites. For the 3QFY19, the company reported operating cash flow of $282 million and free operating cash flow of $38.3 million.
 

3Q19 Key Highlights (Source: Company Reports)
 
Outlook: The company remains focused on providing returns to shareholders, and its strong balance sheet provides flexibility to pursue strategic growth initiatives. 
 
Valuation Methodology:Price/Earnings Multiple Approach

Price/Earnings Based Valuation (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months.
 
Stock Recommendation: As per ASX, the stock of CIM is trading close to its 52-weeks low of $27.80, offering a decent opportunity for accumulation. The stock has a market cap of $9.2 billion with a PE multiple of 11.74x and an annual dividend yield of 5.53%, suggesting a decent opportunity for accumulation. For the half-year ended 30^th June 2019, gross margin of the company stood at 44.8%, higher than the industry median of 12.5%. This indicates that the company is managing its costs well and is able to convert its revenue into profits. In the same time span, ROE of the company stood at 15.2% as compared to the industry median of 5.2%. Considering the returns, trading levels, higher gross margin and ROE, and decent growth opportunities, we have valued the stock using one relative valuation method, i.e., Price to Earnings Multiple. For the purpose, we have taken the peer group – Downer EDI Ltd (ASX: DOW), Worley Ltd (ASX: WOR), Boral Ltd (ASX: BLD), etc., and arrived at a target price offering lower double-digit upside (in % terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $29.29, up by 3.098% on 31^st January 2020.
 

Bank of Queensland Limited

 
APRA Basel III Update: Bank of Queensland Limited (ASX: BOQ) is one of the leading regional banks with more than 180 branches throughout Australia. On 31^st January 2020, the bank notified that APRA Basel III Common Equity Tier 1 capital ratio of the group stood at 9.5% as at 30^th November 2019, up from a ratio of 9% as at 31 August 2019. Total capital ratio at the end of the period was 12.8%.  Total cash outflows for the period stood at $34.23 billion, up from $32.36 billion as at 31 August 2019.
 

Cash Outflow Details (Source: Company Reports)
 
FY19 Financial Key Highlights: The company’s statutory net profit after tax declined 11%, whereas cash earnings after tax declined 14%, on a year over year basis. For FY19, the company declared a dividend of 65 cents per share, which dropped 14% as compared to pcp.
 

FY19 Results Summary (Source: Company Reports)
 
Outlook: For FY20, the company expects a difficult year with lower year-on-year cash earnings and higher post-Hayne regulatory and compliance costs. In FY20, the company also expects to incur increased operating expenses due to higher investment in technology.
 
Valuation Methodology: P/CF Multiple Approach

P/CF Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: As per ASX, the stock is trading below the average of its 52-week low and high of $7.11 and $10.77, respectively. As per ASX, the stock has a market cap of $3.44 billion with a PE multiple of 10.22x and an annual dividend yield of 8.58%, suggesting a decent opportunity for accumulation. We have valued the stock using P/CF based relative valuation method, and for the said purpose, we have considered peers like Bendigo and Adelaide Bank Ltd (ASX: BEN), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Ltd (ASX: ANZ), to name few. Therefore, we have arrived at a target price with an upside of lower double-digit (in percentage terms). Considering the favourable valuation and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $7.65 per share, up 0.923% on 31^st January 2020.
 

G.U.D. Holdings Limited

 
Revenue up ~3.3% in 1HFY20: G.U.D. Holdings Limited (ASX: GUD) is engaged in the distribution of automotive filtration and other service parts, locking systems as well as other security products.
 
1HFY20 Financial Highlights: During the period, the company reported revenue of $227.1 million, up 3.3% on a year over year basis. EBITDA for the year stood at $50.1 million, representing an increase of 11.1% on a year over year basis. Net profit after tax stood at $26.6 million, declining 9.3% on a year over year basis. Underlying earnings per share for the period amounted to 31.9 cents, down 7% on a year over year basis.
 

Financial Highlights (Source: Company Reports)
 
Outlook: In FY20, the company anticipates modest growth in EBIT and cash conversion of around 80%. The company continues to focus onenhancing the core operational fitness and drive growth in its strategic plan via potential acquisitions. The company expects continued growth in revenues in 2HFY20.
 
Valuation Methodology:Price/Earnings Multiple Approach

Price/Earnings Based Valuation (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months.
 
Stock Recommendation: As per ASX, the stock of GUD is approaching its 52-week high of $13.46. The stock has a market cap of $971.92 million with a PE multiple of 16.27x and an annual dividend yield of 2.77%, suggesting a decent opportunity for accumulation. For 1HFY20, gross margin of the company stood at 47.4%, higher than the industry median of 40.8%. This indicates that the company is managing its costs well and is able to convert its revenue into profits. Considering the current trading levels, higher gross margin and ROE, and decent growth opportunities, we have valued the stock using one relative valuation method, i.e., Price to Earnings Multiple. For the purpose, we have taken the peer group – Carsales.Com Ltd (ASX: CAR), Sealink Travel Group Ltd (ASX: SLK) and Accent Group Ltd (ASX: AX1), etc., and arrived at a target price offering single-digit upside (in % terms). Hence, we recommend a “Hold” rating on the stock at the current market price of $12.020, up by 7.226% on 31^st January 2020, on the back of decent 1HFY20 results.

 
Comparative Price Chart (Source: Thomson Reuters)

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