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The CIMIC Group share price is down 27% YTD: is it a buy?

The CIMIC Group Limited (ASX: CIM) share price is down 27% in 2019, making it a good time to buy, in my opinion.

Background on CIMIC Group

CIMIC Group is a provider of construction, mining, mineral processing, engineering and maintenance services. It provides services to the infrastructure, resources and property sectors. The group operates in more than 20 countries throughout the Asia Pacific, the Middle East, North and South America and Africa.

Why I think it’s a buy

CIMIC Group has a price-to-earnings (P/E) ratio of 13.10x against the ASX 200, which has a P/E ratio of 18.46x at the time of writing. This is despite the fact that CIMIC Group has grown earnings in 2019 and is set to record great profits for another year. Indeed, CIMIC has recently gained key contracts in Australia and New Zealand, which will help it to grow profits further.

The group has a grossed-up dividend yield of 7.04%, which is solid against the cash rate of just 1% and provides a great return to investors. Additionally, the group have grown dividends steadily in recent years. Further, with a payout ratio of 65% the group has room to continue increasing dividends.

In 2018, CIMIC Group had a return on equity of 32.9%. This is high by any measure and suggests great performance in recent times. Additionally, at the end of 2018, the group announced that it would buy back 10% of the company’s shares, which will help to boost returns further. If CIMIC can maintain this return on equity, it is bound to improve the share price.

Despite the high earnings of the company, it has a relatively low debt level with a debt to equity ratio of just 22% at the end of 2018. This is certainly manageable and suggests that the group are generating earnings from equity rather than relying on heavy gearing.

CIMIC Group has a price to book ratio of 4.31. This may appear a little high compared to the ASX200 which has a price to book ratio of 2.01 at the time of writing. However, when considering the group’s high return on equity, this value can be justified. 

Foolish takeaway

CIMIC Group trades on a relatively low P/E ratio and has a high grossed-up dividend yield. It has been growing earnings and has low debt. I think it’s a buy.

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Motley Fool contributor Chris Chitty 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.