CIMIC Group Limited

CIM Details

IPO Update on Ventia: CIMIC Group Limited (ASX: CIM) is an engineering-driven construction, mining, services, and public-private partnerships (PPPs) firm offering services across infrastructure and resources projects. On 15 November 2021, CIM declared the issuance of the supplementary prospectus for the listing of Ventia Services Group Limited (Ventia) on the ASX & NZX and its IPO. Ventia is an investment partnership between Apollo Global Management LLC and CIM, with each having ~47.1% ownership).

• As per the offer, the final price is ~$1.70 per share and the 100% share capital of Ventia is valued at ~$1.45 billion.
• Ventia offers ~30% share capital for the IPO sized at ~$438 million by way of issuance of new shares (~26%) and divestment by Ventia’s above-mentioned two major shareholders (~2% each).
• The IPO proceeds will be deployed to reduce the debt and optimise the capital structure of Ventia resulting in a ~30% free float on the NZX (New Zealand Exchange) and ASX.
• CIM estimates to receive ~$30 million cash proceeds from the IPO after costs and a statutory pre-tax gain of ~$60 million.
• Post-IPO completion, CIM will retain a ~32.8% stake in Ventia estimated at ~$500 million, subject to a voluntary escrow duration.
• Ventia expects to seek full integration advantages from the acquisition of Broadspectrum and increased earnings contribution to CIM.

Key Highlights of 9MFY21:

• The Group revenue increased by ~9.2% YoY to ~$10.9 billion for the nine months ending 30 September 2021 due to growth realised in Australian Construction and Services. The NPAT recorded for 9MFY21 stood at ~$303 million.
• CIM reported an award of ~$16 billion of new work during 9MFY21 and an increase in work in hand to ~$35.1 billion. Services & mining order book is reported to be well-diversified.
• The company has ~$4.0 billion liquidity and net debt of ~$754 million as of 30 September 2021.

EBITDA Growth Highlights; (Analysis by Kalkine Group)

Key Risks: The company faced the impact of COVID-19 lockdowns in New South Wales, Victoria, and New Zealand. Forex rate changes and regulatory protocols pose risk to the financial performance of the company.

Outlook:

• CIM has a total future pipeline of relevant tenders to be awarded more than ~$450 billion as of 30 September 2021. The company is working on multiple PPP (public-private partnership) tenders.
• The company anticipates the financial close of Northeast Link in Q4FY21.
• The company expects favourable business outlook given the declaration of multiple stimulus packages by governments in core Construction and Services markets.
• CIM expects improved net debt position in 4QFY21 and provides NPAT guidance of ~$400 - ~$430 million for FY21, subject to market scenario and one-time events such as Ventia IPO.

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

Source: 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 stock of CIM gave a negative return of ~9.51% in the past three months and a negative return of ~8.58% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $16.860 - $27.510. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average P/E multiple, considering its decline in NPAT for 9MFY21, increase in net debt position from June 2021 to September 2021, and COVID-19 lockdown risk in Australia & New Zealand. For this purpose of valuation, few peers like Monadelphous Group Limited (ASX: MND), MAAS Group Holdings Limited (ASX: MGH), Service Stream Limited (ASX: SSM), and others have been considered. Considering the current trading levels, rise in top-line, improved cash flows, reduced gross capex for 9MFY21, tender pipeline in process for FY22, valuation upside, we give a ‘Buy’ rating on the stock at the current market price of $18.730, as of 17 November 2021, 2:11 PM (GMT+10), Sydney, Eastern Australia.

CIM Daily Technical Chart, Data Source: REFINITIV  

SG Fleet Group Limited

SGF Details

Director’s Shareholding Update: SG Fleet Group Limited (ASX: SGF) provides fleet management, vehicle leasing, and employee benefits solutions to corporate, SME, and Employee Benefits segments in New Zealand, Australia, and the UK. On 26 October 2021, Director, Kevin Wundram held 23,981 ordinary shares in SGF and acquired unlisted ~24,070 performance rights and ~271,332 options in an on-market purchase. These shares were issued as FY22 incentive awards, as per an equity incentive plan post-shareholder approval at the Annual General Meeting (AGM) held on 26 October 2021.

Q1FY22 Highlights (Quarter Ending 30 September 2021):

• Australian (AU) Business Progress: In Q1FY22, SGF reported high sales activity, account wins, a few contract renewals, and expansion of its product range under the corporate segment. Decent progress was experienced in the commercial vehicle segment due to the reactivation of several infrastructure projects. The Novated business segment saw ~25 new accounts win, an increase in enquiries, and revenue per order during the quarter.
• Momentum in New Zealand (NZ) Business: The NZ business reports continued momentum from FY21 flowing into Q1FY22.
• UK Business Update: The company is experiencing business acceleration and keen interest for the demand of LEV (low-emission vehicles) and light commercial vehicles.
• Individual Businesses Performance: The Carly and DingGo businesses are advancing well with the initiatives and alliances launched in the last few years. The DingGo business is gaining traction and has expanded in Australia and New Zealand, and to both Retail and Corporate channels.
• LeasePlan Integration: SGF is progressing well with the integration process of LeasePlan and yielding positive outcomes and cross sell avenues from the expanded customer base.

NPAT Highlights (Analysis by Kalkine Group)

Key Risks: The company faces the impact of the COVID-19 lockdowns, vehicle supply challenges due to higher lead time, and lower disposal volume on the business.

Outlook:

• SGF reports increase in the order pipeline in Q1FY22 from the pre-COVID-19 levels under the corporate segment and record level order pipeline for the Novated business. For the NZ business, the company has a record order pipeline entering FY22.
• Given the increased traction for the Carly subscription services business amongst the corporate fleet, SGF plans to now introduce Carly to the LeasePlan customer book.
• SGF is witnessing economic recovery across businesses, markets, improved trading environment, significant rise in the prices of used vehicles, and robust order pipelines.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: 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 stock of SGF gave a negative return of ~6.49% in the past three months and a negative return of ~8.48% in the past six months. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ average EV/Sales multiple, considering its strong order pipeline, economic recovery, growth across corporate business channel, expanded customer & resource base with the acquisition of LeasePlan. For this purpose of valuation, few peers like Brambles Limited (ASX: BXB), AMA Group Limited (ASX: AMA), Downer EDI Limited (ASX: DOW), and others have been considered. Considering the current trading levels, continued strong performance from AU, NZ & UK Corporate businesses, growth in leads and order pipeline flowing in FY22, rise in used vehicle values, synergies from the LeasePlan acquisition, and opportunities to cross-sell to other business customers in FY22, and valuation, we give a ‘Buy’ rating on the stock at the closing market price of $2.58, as of 17 November 2021, 10:45 AM (GMT+10), Sydney, Eastern Australia.

SGF Daily Technical Chart, Data Source: REFINITIV 

Monadelphous Group Limited

MND Details

New Contract Wins: Monadelphous Group Limited (ASX: MND) offers construction, maintenance, and industrial services to infrastructure, energy, and resources sectors operating in Chile, the Philippines, China, Australia, Mongolia, Papua New Guinea. On 17 November 2021, MND declared its newly obtained contracts and contract extensions in the resources sector worth ~$110 million.

• This includes a 12-month contract extension with BHP Iron Ore to provide general maintenance services at the Mt Whaleback, Jimblebar, and other mine sites in the Pilbara region. Another contract extension has been availed on the BHPs Nickel West operations in Western Australia for maintenance and project services.
• Multiple new contracts with Rio Tinto in the Pilbara region for the construction of new hawser rails and upgrades have also been secured.

Substantial Shareholders: Recently, Allan Gray Australia Pty Ltd and its related entities became a substantial holder with ~5.08% voting rights whereas Vanguard Group ceased to be a substantial shareholder on 5 November 2021 in the company.

FY21 Highlights:

• Revenue Growth: The total revenue from contracts with customers including JVs increased from ~$1,650.76 million in FY20 to ~$1,953.18 million in FY21 a rise of ~18.3% YoY.
• Rise in NPAT: The NPAT rose to ~$48.46 million in FY21 from ~$37.22 million in FY20.
• Decline in Net Operating Cash Flows: The net operating cash flows reduced from ~$119.07 million in FY20 to ~$26.73 million in FY21.
• 90% Dividend Payout: The Board announced 21 cents per share (cps) of final dividend, bringing the fully franked FY21 dividend to 45 cps and ~90% of reported NPAT (net profit after tax).
• Secured Work: MND has secured a work pipeline of ~$950 million of new contracts and contract extensions in FY21.
• Liquidity Position: MND exited FY22 with a robust cash balance of $175.7 million as of 30 June 2021.

Revenue Trend from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of skilled labour shortage due to restrictions on interstate travel. A low level of activity in the core sectors may impact the financial performance of the divisions.

Outlook:

• The economic conditions for the core sectors are expected to be buoyant and facilitate a strong opportunity pipeline. MND reports a positive outlook for the Australian iron ore industry within the resources sector due to high levels of expenditures and production.
• The growth in maintenance activity will be steady and commodity prices outlook for lithium, gold, copper, and nickel is expected to remain strong presenting opportunities for these markets in Australia, and overseas.
• As the market conditions in the oil and gas sector are improving, MND expects a new construction avenue from the emergence of LNG (liquefied natural gas) projects expected in 2022/2023.
• MND expects lower revenue for FY22 than FY21 owing to the timing of award and start of new major projects.
• MND will conduct an online Annual General Meeting (AGM) on 23 November 2021.
  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: 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 stock of MND gave a negative return of ~18.78% in the past three months and a negative return of ~6.18% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $8.910 - $15.550. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median EV/Sales multiple, considering its decline in net operating cash flows in FY21, unprecedented skilled resources shortage, and lower FY22 revenue expectations. For this purpose of valuation, a few peers like CIMIC Group Limited (ASX: CIM), Lycopodium Limited (ASX: LYL), Johns Lyng Group Limited (ASX: JLG), and others have been considered. Considering the current trading levels, new contracts from BHP and Rio Tinto, favourable commodities’ outlook, investment in major construction projects, demand for maintenance services, upside in valuation, we give a ‘Buy’ rating on the stock at the current market price of $9.250, as of 17 November 2021, 11:54 AM (GMT+10), Sydney, Eastern Australia.

MND 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.

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 and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.