CIMIC – Value to Emerge

Cimic Group is under Algo Engine sell conditions and following the recent 1H19 earnings, the stock has sold off over 20%.

Mining profits were up +26% but construction-related profit was down 15%. The broad thematic around the CIMIC business remains attractive and we continue to monitor for an approaching entry point.

Note: Short-term indicators are now turning positive.


CIMIC – Up to 10% Share Buyback

Cimic Group is under Algo Engine sell conditions since forming a lower high back in February at $50.

A weak first-half earnings result has seen the sell-off accelerate in the past few days. We’d normally give this name a wide berth, whilst we wait for confirmation of earnings and in particular, free cash flow improvements.

However, we draw your attention to the “up to 10%” share buyback which the company will recommence in August.



CIMIC Reports 1H19 Earnings

Cimic Group reports 1H19 earnings tomorrow and the market is looking for  NPAT of $390m.

Full year NPAT should maintain within guidance at $790m to $830m.

The CIMIC share price has been trading at the lower end of the valuation band following allegations of creative accounting. CIMIC has pushed back against the claim and maintained that their accounts meet the required auditing standards.

We’ll wait to see what’s in tomorrow’s result, but we continue to like the industry thematic in which CIMIC operates. We expect CIMIC to report a strong net cash position of $1.4bn+.

Based on FY20 earnings we have CIMIC trading on a forward yield of 4%.



CIMIC – Valuation Review

Cimic Group is under Algo Engine sell conditions and with the group reporting 1H19 earnings later this month, we will be looking closely at the underlying growth trends.

We expect guidance to be at the top end of the $800-$840mn range, with mining related income to be strong, and construction to be flat.

CIM’s exposure to resources and infrastructure growth should lead to FY20 Revenue of $19bn, EBIT $1.3bn and underlying profit growth of 5%+.

CIM trades on a 3.8% forward yield, based on FY20 DPS growth from $1.65 to $1.75.




CIMIC Reports FY18 Earnings

CIMIC Group had been a holding in the ASX 100 model and was removed earlier this week. Our Algo Engine triggered the sell signal as price action developed into a lower high structure.

CIM reported FY18 NPAT up 11% to $780m which is marginally below consensus.

The earnings result is at the upper end of the $720–780m guidance, issued by the company last year. FY19 guidance now stands at $820mn or 6 – 8% growth.

CIMIC is trading on a forward yield of 3.7% and we consider the stock as fair value. For investors holding CIMIC, we recommend selling a $48 call option to enhance the income return.


Looking For More Upside in DOW & CIM

We recommend buying both Downer EDI & CIMIC Group at current levels.

Both of these infrastructure names have pulled back materially from their June highs without any negative changes to their growth prospects.

From a technical perspective, we see medium-term upside targets of $7.50 and $51.50, respectfully.


CIMIC – 3Q Earnings Announced Tomorrow

CIMIC will report their 3Q18 earnings result tomorrow.

We expect 12% growth based on the same time last year and the company to reaffirm the calendar  year 2018 guidance of underlying NPAT to be in the range of $750 million+.

The company is currently bidding on several major projects within the contract mining and infrastructure construction divisions. Work in hand is currently over $35 billion

We also look for any additional information around the 10% share buy-back program. FY19 dividend of $1.70 per share, places the stock on a  forward yield of 3.6%

We recommend accumulating CIM & Downer EDI.


ALGO Update: A Buy/Write Strategy For Cimic

Our ALGO engine has been long CIM since June 1st at $40.00.

Since then the share price has risen over 25% and traded at a 10-month high of $51.64 last week.

In addition to posting better-then-expected profit results back in July, CIM has also secured several mining services agreements including a recent $420 million contract extension with Antofagasta Minerals in Chile.

On balance, we see the stock trading in a high-level consolidation pattern over the medium-term.

As such, we consider CIM a buy/write candidate with reasonable upside potential and increased cash flow from the sold call options.


Keep CIMIC On The Radar

CIMIC was a stand out  during the recent earnings season with growth coming in well above market consensus, supported by large infrastructure spending.

We expect 2 – 3 years of above trend growth in CIMIC and see the current weakness as an opportunity to accumulate the stock.

Our buy range is $48.50 to $47.50.

Also keep an eye on any weakness in the share price of Downer EDI, as a buy on the dip opportunity.