Stocks’ Details

CIMIC Group Limited

New Contracts Awarded to Group Companies: CIMIC Group Limited (ASX: CIM) provides construction, mining and operation, and maintenance services to the infrastructure sector. The market capitalisation of the company stood at $8.79 Bn as on 25^th February 2020. Recently, UGL, a CIMIC Group Company, has secured contracts for providing maintenance, turnarounds and project services for its clients in the oil and gas sector. These contracts would help UGL to generate revenue amounting to around $450 million.

Another group company, CPB contractor, got contracts for delivering upgrades to two major regional highway projects, including South Gippsland Highway Upgrade between Koonwarra and Meeniyan and Mackay Northern Access Upgrade at Mackay Queensland in Victoria. These projects would cement the financial position of CPB with revenue of $164 million. The below picture provides an overview of financial performance for FY19:


Financial Overview (Source: Company Reports)

NPAT Guidance for FY20: Subject to market conditions, the company is expecting NPAT in the ambit of $810 million to $850 million for FY20. The company has a disciplined focus on sustaining a strong balance sheet and generating cash.

Valuation Methodology:P/E Based Valuation

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: During FY19, the company has returned cash amounting to $525.8 to shareholders in the form of dividends totaling $509.1 million and share buyback worth $16.7 million. The company possesses a decent pipeline of work in hand worth $37.5 billion, which is equivalent to revenue of over two years. We have valued the stock using P/E based relative valuation approach and arrived at a target price, which is offering an upside of high single digit (in percentage terms). Therefore, considering the recent contracts to group companies, decent pipeline of work in hand and returns to shareholders, we give a “Buy” recommendation on the stock at the current market price of $26.160 per share, down by 3.611% on 25^th February 2020.

Monadelphous Group Limited

Decent Performance in 1H FY20: Monadelphous Group Limited (ASX: MND) is involved in the provisioning of engineering services within Australia. The market capitalisation of the company stood at $1.53 Bn as on 25^th February 2020. For the six months ended 31^st December 2019 (1H FY20), the company reported revenue amounting to $852 million with a rise of 2.6% versus 1H FY19. Net profit after tax for the period was $28.5 million. These results have been supported by a strong performance from the Maintenance and Industrial Services division of MND. This division reported revenue of $584.5 million with a rise of 16%. During the half-year, the company secured major construction contracts at the West Angelas Project of Rio Tinto and the Kemerton lithium hydroxide plant of Albemarle Lithium. The Board of the company declared a fully franked interim dividend of 22cps for 1H FY20.


Revenue by Division (Source: Company Reports)

Solid Pipeline of Opportunities: The company is expecting a solid pipeline of opportunities within the resources and energy sectors from the favourable market conditions over the upcoming years. The company is anticipating strong demand for maintenance services on the face of record production rates in the resources and oil & gas sectors.

Valuation Methodology:EV/Sales Based Valuation

EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: During the half-year, the company has advanced its markets and growth strategy by making investment amounting to $14.3 million in numerous strategic acquisitions. Current ratio of the company stood at 2.02x in FY19 as compared to the industry median of 1.14x. This implies that MND is in a decent position to address its short-term obligations against the broader industry. We have valued the stock using EV/Sales based relative valuation approach, and for the purpose, we have taken peers such as ALS Ltd (ASX: ALQ), NRW Holdings Ltd (ASX: NWH) and Fletcher Building Ltd (ASX: FBU). We have arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Thus, in light of a decent liquidity position, investment in strategic acquisitions and performance in 1HFY20, we give a “Buy” recommendation on the stock at the current market price of $15.570 per share, down by 4.244% on 25^th February 2020.

Freelancer Limited

Gross Payment Volume at Record Level:Freelancer Limited (ASX: FLN) operates an online freelancing, outsourcing, and crowd sourcing marketplace. The market capitalisation of the company stood at $178.84 Mn as on 25^th February 2020. At the end of FY19, Gross Payment Volume (GPV) of the group stood at A$788 million with a rise of 6.4% over pcp. This GPV amount comprises Freelancer GPV of A$181.4 million and Escrow GPV of A$606.3. The company managed to report the growth of 6.4% in Escrow GPV, despite the decision for discontinuation of service to 40 countries in July 2019 because of increased compliance costs for providing service in higher-risk countries.


Escrow Gross Payment Volume (Source: Company Reports)

Aspects for FY20: The company expects to complete the front-end overhaul of Freelancer.com in FY20. With respect to Escrow.com, the company is confident about partner opportunities in its Application Programming Interface (API) ecosystem.

Stock Recommendation: The company closed the financial year 2019 with positive net operating cash flow of A$2.1 million and cash and cash equivalents of A$32.0 million. The company reported a slightly lower gross margin of 84% in 1H FY19 because of the higher cost of sales attributable to enterprise services. As per ASX, the stock of FLN is trading close to its 52-week low level of $0.370, providing decent opportunity for accumulation. Hence, considering the record result in FY19, positive net operating cash flow and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.410 per share, up by 3.797% on 25^th February 2020.

Emeco Holdings Limited

Response Towards Media Speculation: Emeco Holdings Limited (ASX: EHL) is involved in selling, renting and maintaining heavy earthmoving equipment to customers in the mining industry of Australia and overseas. The market capitalisation of the company stood at $808.55 Mn as on 25^th February 2020. The company has responded to a media speculation about refinancing of US notes. The company stated that the details like the type of debt being issued, the size of a debt raising, and associated interest costs printed in the article of Dataroom column in the Australian, were inaccurate. 

EHL has completed the retail component of its fully underwritten entitlement offer and raised around $10 million. Moreover, it had previously raised around $55 million from the institutional component of the Entitlement Offer. The company would be utilising the total proceeds for the acquisition of Pit N Portal Mining Services Pty Ltd and Pit N Portal Equipment Hire Pty Ltd for an enterprise value of $72 million and associated transaction costs. The funds would also be utilised for working capital requirements.

EHL reported strong earnings growth in 1HFY20, which was fueled by strong demand from customers in metallurgical coal, improving conditions in WA as well as the earnings contribution from growth assets purchased in FY19.


Operating Financial Results (Source: Company Reports)

Objective for FY20: The company’s objective for FY20 revolves around deleveraging down to 1.5x and to refinance its notes on better terms so that it can drive shareholder returns and ultimately pay a dividend.

Stock Recommendation:  Net margin of the company stood at 11.0% in 1HFY20, reflecting YoY growth of 5.7%. This reflects that the company has improved its capability to convert its topline into the bottom line. Return on equity of the company stood at 12.5% in 1H FY20 as compared to the industry median of 4.3%. During the time span of three months and six months, the stock of EHL has provided returns of 10.60% and 24.35%, respectively. EHL has EV/ Sales multiple of 2.4x as compared to the industry median (Professional & Commercial Services) of 2.7x on TTM basis. Thus, considering the strong earnings growth in 1HFY20 and decent returns to shareholders, we give a “Buy” recommendation on the stock at the current market price of $2.220 per share, down by 2.632% on 25^th February 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.