Morningstar | No-Moat Cimic Maintains 2019 NPAT Guidance After an Affirming 1Q. No Change to FVE.
We make no change to our AUD 34.50 per share fair value estimate for no-moat Cimic. The company confirmed 2019 NPAT guidance of AUD 790-840 million after announcing first-quarter 2019 NPAT up 5% year on year to AUD 181 million, in line with expectations. Our 2019 NPAT forecast is unchanged at a guidance high-end AUD 840 million or AUD 2.59 per share.Cimic reported quarter’s-end work-in-hand of AUD 36.9 billion, little changed from December 2018’s AUD 36.7 billion. Larger first-quarter wins included a nine-year AUD 1.7 billion contract at the Jwaneng diamond mine in Botswana in which Thiess’ interest is 70%, and AUD 725 million Dubbo regional rail project. Work-in-hand does not yet include the PPP and Alliance package portions of Brisbane’s AUD 5.4 billion Cross River Rail announced on April 4, where revenue to Cimic companies is likely to be approximately half of that project value.
Still, we are not persuaded to materially increase our forecast five-year group revenue CAGR of 3.8% to AUD 17.7 billion by 2023 versus 2018’s AUD 14.7 billion. As a function of revenue, work-in-hand has declined marginally over the last three years to just under 2.5 years from 2.7 years. And work-in-hand per fully diluted share at AUD 113 is still well below 2010 peaks of AUD 140. Yet the current AUD 48.40 share price is well above 2010 levels, and overvalued in our opinion. We estimate the market anticipates too-high 9% five-year EBITDA CAGR to AUD 2.6 billion by 2023. Group EBITDA did grow sharply, up by 38% in 2017 from a low base in 2016, and then by 12% in 2018. We assume a 2% EBITDA increase in 2019, and maintain our 3% five-year EBITDA CAGR forecast to AUD 2.0 billion by 2023. Our fair value estimate equates to an unchanged 2023 EV/EBITDA multiple of 6.6.
Net cash at quarter’s end remained at AUD 1.6 billion, a healthy position and a key appeal of Cimic, appropriate for a company operating in a space where contracts can quickly turn against operators.
CIMIC Group is a construction company and the contract miner. Co. provides construction, mining, engineering, public-private partnerships (PPP), and operation and maintenance services to the infrastructure, resources and property markets. Co. comprises the following main segments: construction, contract mining, PPP, engineering, Habtoor Leighton Group, and commercial and residential. Co. delivers its services through several companies: CPB Contractors Pty Ltd, Leighton Asia Limited, Thiess Pty Ltd, Pacific Partnerships, and EIC Activities Pty Ltd. Co. operates across the Australia Pacific, Asia, Middle East and Americas regions in the infrastructure, resources and property markets.
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