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Why the Cimic Group Ltd (ASX:CIM) share price is going nuts

Cimic Group Ltd (ASX: CIM) shares are up 14% at the time of writing after it reported a 12% growth in NPAT to $363 million, but the application of new accounting standards will deliver a 38% hit to total equity.

According to a report in The AFR, Cimic’s application of accounting standard AASB 15 from January 1 saw total equity fall $1.28 billion to $2.1 billion.

According to the report, revenues can only be recognised when it is “highly probable” a reversal will not occur and costs can only be capitalised if they are expected to be recovered.

Cimic reported a cash flow uptick of 17% for the six months to June 30, 2018 with its net cash position at $1.3 billion, revenue growth of 11% and 2018 NPAT guidance of between $720 million and $780 million confirmed.

Stocks in the building materials sector have struggled with a reduction in building approvals across Australia, with CSR Limited (ASX: CSR) shares down 29% from an early May high of $5.74, and Brickworks Limited (ASX: BKW) or James Hardie Industries plc (ASX: JHX) making only small gains.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Brickworks. 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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