Has CIMIC Group Limited established a unique and diversified business model?

Team Veye | 08 Apr 2020 ASX - CIM
Has CIMIC Group Limited established a unique and diversified business model?

CIMIC Group Limited (ASX: CIM)

CIMIC Group Limited (ASX: CIM) announced on 1 April 2020 announced that CIMIC Group was continuously monitoring and responding to the changing conditions associated with coronavirus, to ensure the safety of its people and the continuity of operations.

For 2019, CIMIC reported a statutory net loss after tax of $(1.0) billion following a one-off post-tax impact of $(1.8) billion relating to CIMIC’s exposure to the non-controlling 45% financial investment in BIC Contracting, as a result of the decision to exit the Middle East.

It was further informed that, notwithstanding this non-recurring impact on its 2019 results, leaving the region is the appropriate long-term decision for its business and for its shareholders.

CIMIC Group’s operating performance (which excludes the one-off impact associated with BICC) was sound, with net profit after tax of $800 million, up 3% year on year.

Net cash stood at $832 million on 31 December, and it has a strong level of liquidity further supported by committed, undrawn debt facilities of $3.0 billion at the end of December.

This strong level of operational liquidity is not impacted by the expected cash outlay for BICC, given that CIMIC Group has a separate, dedicated and additional liquidity facility of $1.5 billion for this matter.” (Data Source – Company Reports)

 

Veye’s Take

CIMIC Group has worked to establish a unique, diversified business model which delivers cash-backed profit and sustainable returns through effective risk mitigation. Moody’s referred to its Middle East exit as being ‘credit positive’. It is expected that governments and the private sector will continue to invest to meet sustained demand for critical economic and social infrastructure, notwithstanding the short-term impact of coronavirus. There are more than $500 billion of tenders relevant to CIMIC to be bid and/or awarded in the current and coming years. CIMIC has a strong pipeline of new work, and its work in hand reached $37.5 billion at the end of the year, equivalent to more than two years’ worth of revenue. The company has a strong financial position and a balance sheet that gives it the flexibility to pursue strategic growth initiatives and capital allocation opportunities. The stock after MACD crossover may consolidate here with some minor retracements. It appears to have formed a short-term base above $20.50. Remaining above this, it can have the potential to achieve considerable upside. We give a “Buy” recommendation on “Cimic Group Ltd” at the current price of $23.47

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