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CIMIC share price higher after announcing $630 million Sydney Trains deal

The CIMIC Group Ltd (ASX: CIM) share price has pushed higher this morning following the release of a positive announcement.

At the time of writing the engineering giant’s shares are up almost 2% to $46.70.

What did CIMIC announce?

This morning CIMIC announced that its subsidiary UGL has secured a five-year extension to its contract with Sydney Trains for the delivery of maintenance and logistics services for a portion of Sydney’s metropolitan passenger rail fleet.

According to the release, the five-year extension replaces the two-year extension announced in January and will see UGL provide heavy maintenance, component overhaul, and supply chain capabilities, together with engineering and depot-related support.

The extension was effective from July 1 and is expected to generate revenue of approximately $630 million to UGL, replacing the $277 million of revenue announced in January.

CIMIC’s chief executive officer, Michael Wright, was very pleased with the new extension.

He said: “We are very pleased to be extending our long-standing relationship with Sydney Trains and Transport for NSW, building on a partnership that has spanned several decades.”

He added: “CIMIC Group, through its various operating companies including UGL, CPB Contractors, Pacific Partnerships and EIC Activities, provides a unique and market leading rail capability to the rail network owners and operators of NSW and beyond. Through this contract extension, UGL will provide value and optimal benefit for the people of New South Wales.”

The release explains that the services will be delivered through UGL Unipart, a 70:30 joint venture between UGL and Unipart Rail UK.

This joint venture draws on both UGL’s asset management and maintenance capability and extensive knowledge of Sydney’s metropolitan passenger rail fleet. Whereas Unipart Rail UK delivers world class supply chain services to both the rail and vehicle industries.

This news will be welcomed by CIMIC shareholders who will no doubt be disappointed to have seen its shares underperform the market and its peers in 2019.

Year to date the CIMIC share price is up 9%, compared to a ~20% gain by the All Ordinaries index and a 34% gain by the Worleyparsons Limited (ASX: WOR) share price and 22% gain by the Lendlease Group (ASX: LLC) share price.

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Motley Fool contributor James Mickleboro 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.