Why the CIMIC share price is down 19% today

The CIMIC Group Ltd (ASX: CIM) has been hammered more than 19% lower in morning trade after flagging a $1.8 billion hit to its FY19 profit.

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The CIMIC Group Ltd (ASX: CIM) share price has been hammered in early trade and is down 19.87% at the time of writing.

This comes after the group's shares climbed 2% higher following a contract update to the ASX yesterday.

So, what's dragged the CIMIC share price down to its current $29.03 per share level?

a woman

Why the CIMIC share price has been smashed

CIMIC provided an update on its strategic review of BIC Contracting (BICC). BICC is a company operating in the Middle East in which CIMIC holds a 45% non-controlling interest.

As part of the review, CIMIC initiated a confidential M&A process in respect of its financial investment in BICC. Discussions are ongoing with potential buyers for all or part of BICC.

The CIMIC share price has plummeted as investors try to revalue the stock in light of the news.

CIMIC said it has decided to exit the region and focus its resources on its major markets. These include Australia, New Zealand and Asia Pacific, where the group sees more growth opportunities.

One of the big impacts of a sale will be on the group's financials. CIMIC will recognise a one-off, post-tax impact of around $1.8 billion in FY19. This represents all of CIMIC's exposure in relation to BICC.

For context, CIMIC reported a half-year net profit after tax of $367 million in July 2019. This is a big hit to the group's financials which is why the CIMIC share price has been hammered in early trade today.

Excluding the BICC impact, CIMIC expects to report NPAT of around $800 million. The group's financial results are expected on 4 February 2019.

The group will also not declare a final dividend for 2019 as it keeps its cash for a potential $700 million outlay in 2020.

Foolish takeaway

The CIMIC share price has been hammered more than 19% today following the news.

However, it is still not the worst performing ASX 200 stock. That goes to Downer EDI (ASX: DOW), which is down more than 20% today.

Downer downgraded its FY20 profit guidance following underperformance in its engineering, construction and maintenance business this morning.

Motley Fool contributor Kenneth Hall 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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