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Is the Cimic Group Ltd share price a buy?

Trade war worries are weighing down the ASX today and shares in Cimic Group Ltd (ASX: CIM) are following the trend, down 1.62% to $45.55.

Today’s loss may overshadow another piece of good news announced by the company yesterday after trading hours. The group’s subsidiary Leighton Asia won a $182 million contract for the Cavite Laguna Expressway in the Philippines. Construction will commence in the second quarter of 2018 and be completed by 2020.

This is the fourth major contract win announced by Cimic in 2018, following successful bids for the construction of Tailem Bend solar farm in South Australia, engineering and maintenance of BP fuel terminals, and mining services at the Anglo American Dawson project in Queensland. The aggregate impact of these contracts on the group’s revenue amounts to $700 million.

Cimic is riding the Australian infrastructure boom, with major contracts in large scale projects such as the West Gate Tunnel in Melbourne and the Sydney Metro. In FY2017, the company generated free operating cash flow of over $1 billion and strengthened its financial position by more than doubling its net cash to $910 million.

Outlook

There’s plenty of opportunities in the near future for a group that operates in a variety of businesses –  including engineering, construction, maintenance and mining – and participates in tenders in Australia, Asia Pacific, India and the Middle East.

The company expects profits of between $720 million and $780 million in FY2018, a 3% to 11% growth from the previous year.

Foolish takeaway

I’m particularly impressed by Cimic’s capacity to secure contract extensions with existing clients. The company has $36 billion worth of work in hand and the opportunity to roll it over both with new tenders and with the renewal of existing contracts. With the stock down 13% in the last three months and currently trading at 21x earnings, I wouldn’t be surprised to see its price grow in 2018.

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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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