CIMIC Group Limited

CIM Details

Key Takeaways from FY21 Results: CIMIC Group Limited (ASX: CIM) is engaged in the mining, construction, services, and public private partnerships business. This engineering driven firm provides services to the resources and infrastructure sector companies.

• CIM posted a Group revenue of ~$14.7 billion, up by ~8.3% YoY in FY21. Excluding the contribution of associates and JVs, the revenue increase was ~7.6% YoY to ~$9.7 billion for the year.
• The underlying NPAT increased to $405 million in FY21 versus $352 million in FY20.
• The operating cashflows pre-factoring improved from (-) $86 million in FY20 to +$516 million in FY21, depicting a rise of +$603 million.
• CIM completed the IPO of Ventia in Q4FY21 (December 2021 quarter) and realised $32 million of cash proceeds and a gain of $60 million after costs and before tax. It retains ~32.8% stake in Ventia.
• CIM announced 36 cents per share (cps) of unfranked final dividend payable on 05 July 2022 and paid ~42 cps of interim dividend, bringing the total dividend for FY21 to ~78 cps.
• The company secured $20.4 billion in new work in FY21 whereas the work in hand increased to $33.2 billion.

Comparative Net Cash/ Debt Position, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces work delivery challenges, risk of increase in costs compared to estimates, the impact of climate on operations. It faces safety and availability of labour and staff due to the continued COVID-19 uncertainty.  

Outlook:

• The company expects the underlying NPAT for FY22 between $425 - $460 million, up by 4.8% - 13.5% on FY21, well aided by a positive outlook across the core markets of CIM and a robust work pipeline.
• CIM continues to focus on improving working capital, delivering sustainable cash-backed profits, and a strict approach to tendering process, project delivery, and risk management.

Valuation Methodology: Price / Earnings 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 ~19.48% in the past three months and a negative return of ~26.14% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $15.280 - $22.420. 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 the continued negative net operating cashflows, rise in net debt, and risk of shutdowns due to COVID-19. For this purpose of valuation, a few peers like Monadelphous Group Ltd (ASX: MND), Downer EDI Ltd (ASX: DOW), Service Stream Ltd (ASX: SSM), and others have been considered. Considering the current trading levels, new contracts awarded in FY21, decent financial performance in FY21, a positive demand outlook in core markets, an expected increase in NPAT, an indicative upside in valuation, we give a ‘Buy’ rating on the stock at the current market price of $15.620, as of 11 February 2022, 11:54 AM (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.

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.

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