Category: Business, Economics and Finance / Company News / Housing Industry

Construction giant CIMIC pummelled after first-half results

Wednesday, 20 Jul 2016 14:24:03 | Stephen Letts

Construction and engineering business CIMIC - formerly known as Leighton Holdings - has seen its share price crash 20 per cent after unveiling its first-half results.

Despite a 3 per cent increase in net profit to $265 million over the same time last year, brokers were deeply disappointed with the quality of the result.

Deutsche Bank vice-president of equities research Craig Wong-Pan told clients the result missed most of his forecasts.

Mr Wong-Pan noted the low quality result was only boosted by a revaluation gain of integrating the full earnings of the smaller Sedgman business, after CIMIC acquired the remaining 63 per cent of Sedgman it did not already own.

"The underlying net profit after tax of $241 million was even weaker than we expected, as reported earnings were assisted by net gain on acquired entities and lower-than-expected interest expense," he said.

Deutsche Bank also slashed forecasts for revenues in CIMIC's construction, commercial and residential businesses, and lowered its forward-looking earnings per share estimates by 5 to 10 per cent over the next four years.

However, CIMIC chief executive Marcelino Fernandez Verdes defended the result, saying it was solid with improved margins and a positive revenue trend emerging.

The company said it produced an operating cash flow of almost $1.2 billion in the past 12 months and had won $6.8 billion worth of new work, bringing its total work in hand to $29.6 billion, an increase of 2 per cent since late last year.

Profit guidance reaffirmed

Mr Fernandez Verdes reaffirmed full-year profit guidance of between $520 and $580 million, despite weaker revenue streams in key divisions.

Construction revenues fell 32 per cent to $3.2 billion from the previous corresponding period as work on big LNG projects wound up.

The commercial and residential division fared worse, with revenues down 67 per cent to $205m, impacted by overall by weaker performance and impairments in the Devine home building business.

The mining and mineral processing division was also hard hit by the downturn in the resources sector, reporting a 17 per cent decline in revenue to $1.42 billion, although margins expanded.

Corporate earnings increased by $42 million, but this was primarily due to wrapping up the Sedgman acquisition.

The troubled Habtoor-Leighton Group managed a 12 per cent increase in revenues to $612 million, although management noted that payments from clients in the Middle East/North Africa region continued to be delayed.

Disconnection between profitability and cash flow: Morgan Stanley

CIMIC's share price has been under pressure since analysts at Morgan Stanley earlier this month warned it had difficulty reconciling reported profitability and cash flow.

"Our cash reconciliation, however, suggests that this may not have been backed by cash, continuing a disconnect since at least 2014," Morgan Stanley analyst Nicholas Robinson told clients in a research note.

Mr Robinson maintained his negative of the company and a target price of $12.40 per share after the result saying "risks were skewed to the downside."

Mr Robinson pointed to CIMIC's weak operating cash flow, despite paying no cash tax in the half.

In fact CIMIC received a net $7 million cash tax inflow for the half, compared to a payment of $254.8 million in the same period last year.

CIMIC's share price tumbled almost 20 per cent - or $6.58 - to $26.80 on morning trade, wiping around $2 billion from its value.

Prior to the original Morgan Stanley note that valued the company at $12.40 a share, CIMIC had been trading above $36 a share.

CIMIC edged up its interim dividend by 4 per cent to 48 cents per share.



 

Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.

沪公网安备 31010602000204号

Email this to your friend