Ord Minnett Research Recommendation: CIMIC Group (ASX: CIM)
CIMIC Group reported a first-half FY21 net profit of $208m, 2.1% below Ord Minnett’s forecast, while operating earnings of $464.5m came in 1.3% lower. A 20%-franked interim dividend of 42.0cps was declared, versus our 43.0cps estimate.
Work in hand and margins bounced back strongly from a soft CY20 caused by a temporary delay in project awards and a slowdown in revenues due to COVID-19. Some $10.4bn of new work was won in the first half of CY21 despite a 50% reduction in Thiess ownership, and was the second-highest level of new work secured in a half-year since 2015. Management estimated it should be able to secure more than $18bn of new work for the full year. We forecast modest margin expansion in construction as activity returns, but we hold services margins flat.
CIMIC does not expect a material impact on either earnings or project awards from the two-week construction pause in greater Sydney. New NSW government guidelines should enable contractors to mitigate the impact from the restrictions, including contractual relief and provisions for financial claims. Government clients represent 75% of CIMIC’s work in hand (or about 85% excluding Thiess), which will not be affected. In our view, this high level of government work should simplify any claims for CIMIC arising from the lockdown measures.
CY21 net profit guidance of $400–430m was reiterated, versus our $442m projection and consensus in the range of $415–442m. Considering historical half-year earnings skews and the positive momentum in the business, guidance continues to appear conservative. We maintain our Buy recommendation on CIMIC and raise our target price to $30.00 from $29.00.
Walter Watson
RESEARCH EDITOR
Walter is the Editor of Ord Minnett's retail investor publications, such as the Opening Bell, Ords Weekly and the Ords Monthly, along with various investment guides and investor information published by Ord Minnett.