CIMIC Group (CIM) endured a challenging 2019. It was underlined by disappointing financial results, challenges in the Hong Kong construction business, concerns about cashflow performance and a substantial write-down of its Middle East business. Has the resultant share price fall provided us with a great chance to pick up CIM at cheap levels? Or is buying it here a value trap?
Shares in construction and contracting group, CIMIC (The old Leighton Holdings) took a hammering yesterday (like those of Downer EDI did) after it revealed a big clean up and review of its businesses that will see it take a $1.8 billion dollar post-tax impairment on a Middle Eastern company.
Spanish-controlled constructor and contract miner CIMIC (the old Leighton Holdings) has rewarded shareholders for a second period with a 25% increase in interim dividends as revenues grew in all of its core businesses lifting half year profit by 22%.
Cimic reported a weak March quarter, down -8% year on year. Based on the broker's run-rate to achieve FY20 forecasts, underpinned by 1-6% profit growth guidance, Cimic has fallen behind on the run-rate and the June quarter will bring the real impact.
First-half net profit was below expectations. Mining division strength stood out, delivering 26% growth in pre-tax profit. Operating cash flow was well below expectations. The company has indicated it is moving to alliance-style, rather than fixed-price, contracts which have a more even cash flow profile.
Macquarie downgrades to Neutral from Outperform as the stock is now trading close to its target. The broker believes the share price has also caught up with the traditional correlation to earnings. Target is raised to $50.90 from $50.26.