CIMIC Group Limited

CIM Details

Takeover Offer by HOCHTIEF: CIMIC Group Limited (ASX: CIM) provides construction, mining and operation and maintenance services to the infrastructure. Recently, the company updated the market about an off-market takeover offer by HOCHTIEF Australia Holdings Limited at an unconditional and final cash offer of $22 per share for all of the ordinary shares in CIMIC.

• The offer price reflects a premium of 33.4% to the trading price of CIMIC shares on ASX at the close of trading on 23 February 2022
• As per the terms of the offer, if a Shareholder of CIM accepts the offer in respect of its CIMIC shares, then HOCHTIEF would be eligible to all of the rights attached to those CIMIC shares, which mainly includes the amount of any dividends declared or paid by CIMIC after the date of this announcement but excludes any franking credits.
• However, with respect to the dividend announced by CIMIC on 10 February, if a person other than HOCHTIEF is paid that dividend, any person who accepts the Offer in respect of that CIMIC share will have the amount of that dividend deducted from the Offer Price.
• The company’s Board has appointed an Independent Board Committee (IBC) to evaluate and respond to the takeover bid and advised the shareholders to not take any action in respect of the takeover bid at this stage.

Insights of FY21

• For the year ended 30 June 2021, the company recorded a growth of 8.3% in revenue to $14,709.5 million, and underlying NPAT amounted to $405 million, reflecting a rise of 15.1%.
• During FY21, the company secured new work of $20.4 billion, which brought the total work in hand to $33.2 billion.
• The company declared an unfranked final dividend of 36c per share, which took the total FY21 dividend to 78c per share.

Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company’s operational and financial performance could be impacted by changes in the pricing of the ongoing contracts. CIM operates in a very competitive environment, and the rising market share of peers in the industry could lead the business to operational risk.

Outlook:

• For FY22, the company expects NPAT in the range of $425 million-$460 million. As on 31 December, the total future pipeline of relevant tenders to be bid on / be awarded was over $480 billion, which include $115 billion of Public private partnerships (PPP) opportunities.
• During FY22, the company would be focused on managing working capital, generating sustainable cash-backed profits, as well as a rigorous approach to tendering, project delivery and risk management.

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 is trading around its 52-week high level of $22.420. The stock has provided returns of ~34.66% and ~18.30% in the past one and three months, respectively. The stock has a support and resistance level of $20.725 and $22.415, respectively. The stock has been valued using a P/E multiple-based illustrative relative valuation and arrived at a target price with a correction of high-single-digit (in % terms). The company can trade at a slight discount to its peer’s average P/E multiple, considering the high debt to equity ratio and COVID-19 uncertainties. For the purpose of valuation, peers such as Monadelphous Group Ltd (ASX: MND), Downer EDI Ltd (ASX: DOW), MAAS Group Holdings Ltd (ASX: MGH), and others have been considered. Considering the expected correction due to Russia-Ukraine tensions, return in the past few months, current trading levels, and key risks associated with the business, we advise investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $22.005 as on 24 February 2022, 12:30 PM (GMT+10), Sydney, Eastern Australia.

CIM 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.

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