Here’s why the Cimic (ASX:CIM) share price is up 8% on Thursday

A robust nine months out of Cimic’s camp.

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Share in the Cimic Group Ltd (ASX: CIM) are gaining field position today after the company released its financial results for the 9 months ended 30 September 2021.

At the time of writing, the Cimic share price is trading 7.98% higher at $22.32.

Cimic share price gains on strong sales and profit growth

Key investment highlights from Cimic’s earnings report include:

  • Group revenue growth of 9.2% year on year (YoY) to $10.9 billion
  • Other revenue increase of 6.8% YoY to $7.1 billion
  • Earnings before interest, tax, depreciation and amortisation (EBITDA), profit before tax (PBIT) and net profit after tax (NPAT) margins held at 9.6%, 5.1% and 4.3% respectively, despite Q3 FY21 COVID-19 impacts
  • Operating cash flow pre-factoring improvement of $351 million from the year prior
  • Strong liquidity position of $4 billion, with credit rating reaffirmed as Baa2/outlook stable (investment grade) from Moody’s rating service.

What happened this reporting period for Cimic?

The construction and mining company landed $16 billion of new work in the 9 months to September 30, thereby increasing its work in hand (WIH) to more than $35 billion – up 17% YoY.

Of this amount, $5.6 billion was awarded in Q3 alone, which represents a “significant recovery from 2020 and continuing, and well ahead of pre-COVID levels”.

Cimic advised it also has around $450 billion in its pipeline of relevant tenders to be both bid on and awarded, including more than $100 billion of public-private partnership (PPP) opportunities.

In addition, it was a strong 9 months on the profitability front for the company, which grew revenue by more than 9% YoY.

On this base, Cimic improved its operating cash flow pre-factoring by $351 million over the prior year, with the company’s “strategic reduction of factoring now complete”.

This carried through to NPAT of just over $300 million after the company strategically rebalanced its working capital financing.

As a result, the company’s EBITDA cash conversion pre-factoring in the last 12 months was 40%, 73% without Leighton Asia.

Cimic also exited the quarter with $4 billion in available liquidity, after a $481 million factoring unwind and $187 million dividend payout to shareholders.

What did management say?

CIMIC Group executive chair and CEO Juan Santamaria said:

CIMIC delivered strong operational performance in the nine months to September, led by the performance of Australian Construction and Services. The result was achieved amid COVID-related shutdowns in New South Wales, Victoria and New Zealand, indicating the resilience of our business and effective management of operations throughout the pandemic.

Regarding the optimisation of how the company uses working capital, Santamaria added:

We have completed the strategic reduction of our use of working capital financing to a stable level and liquidity remains strong at $4 billion, with an extended maturity profile and diversified sources of funding.

What’s next for Cimic?

The outlook for Cimic’s core business remains positive, with “numerous stimulus packages announced by governments in core construction and service markets with additional opportunities through strong PPP pipeline”.

As such, management gave colour on FY21 guidance in the release, where it forecasts NPAT in the range of $400 to $430 million.

It also hopes to integrate the recent acquisition of Innovative Asset Solutions into its portfolio to help drive margins and add additional group revenue.

The Cimic share price has struggled this year to date. Having posted a loss of 0.8% over the last 12 months, the company now finds itself 8.45% in the red since January 1.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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