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CIMIC releases its third quarter update: Should you invest?

All eyes will be on the CIMIC Group Ltd (ASX: CIM) share price this morning following the after-hours release of its third quarter result.

How did CIMIC perform in the third quarter?

For the nine months ended September 30, CIMIC reported a net profit after tax of $573 million on revenue of $10.7 billion. This was a 2% increase in profit and flat revenue compared to the prior corresponding period.

Over the period the company generated operating cash flow of $811 million, up $500 million on the same period last year. However, its cash conversion was weak once again.

CIMIC finished the quarter with a strong financial position. It has net cash of $826 million, despite returning $294 million to shareholders through dividends and share buybacks during the quarter.

Another positive is its work in hand. That has now increased to $37.2 billion, up 6% year on year. Management believes this provides good visibility for revenue and earnings.

Looking ahead, it has reaffirmed its full year net profit after tax guidance. Management continues to expect this to be in the range of $790 million to $840 million, subject to market conditions. Though, it will certainly need a strong fourth quarter to achieve this based on its earnings for the first three quarters.

CIMIC’s executive chairman, Marcelino Fernández Verdes, said: “CIMIC Group is on track at the end of the third quarter. The positive outlook across the Group’s core markets supports our full year guidance. The mining market continues to strengthen, investment in infrastructure is driving construction and services, and we have a unique position in a growing PPP market.”

Should you invest?

Whilst its shares look reasonably good value following a sharp share price decline this year, I intend to wait to see how it performs in the fourth quarter before considering an investment.

Incidentally, this morning analysts at Goldman Sachs retained their neutral rating and cut the price target on its shares to $39.50. It feels achieving the top end of its guidance will be challenging and notes that its cash conversion was weak.

Whilst Goldman isn’t positive on CIMIC, it has given a couple of buy ratings out this week. Its analysts rate both Redbubble Ltd (ASX: RBL) and Super Retail Group Ltd (ASX: SUL) as buys following their quarterly updates.

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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.

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