Here’s why the Cimic (ASX:CIM) share price popped today

A major project in Victoria is back on track.

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The Cimic Group Ltd (ASX: CIM) share price finished in the green today after the company announced it had settled a dispute.

At the close of trade, Cimic shares were swapping hands for $18.33, up 2.23%.

Cimic is a major construction, mining and services company with subsidiaries including CPB Contractors.

What was the update?

In today’s release, Cimic advised it has reached a commercial settlement on the West Gate Tunnel project in Melbourne. The tunnel is being constructed by CPB Contractors in a joint venture with John Holland.

Under the terms of the settlement, the Victorian state government will provide $1.9 billion while Transurban will contribute $2 billion to ensure the tunnel is built by late 2025.

However, the profit margin from the project will now be forgone and Cimic will see a reduction in revenue of $300 million. John Holland will also let go of $300 million of revenue.

Despite the revised revenue outlook, investors appeared to react positively to the news.

The settlement means tunnelling on the project will now be able to start early next year. Also, it resolves what the company described as a long-standing legacy issue that has taken up a lot of management’s time.

Furthermore, Cimic noted it would be able to offset the financial hit with existing provisions and additional non-recurring gains. The company expects to report a net profit after tax (NPAT) of $400-$430 million for the 2021 financial year.

In a statement signed by the Cimic board, the company said:

Cimic is pleased to have achieved this settlement, avoiding further potential legal and other costs, while being able to maintain guidance.

Settlement of West Gate also allows tunnelling to commence to the benefit of the project parties and, ultimately, the people of Victoria who will gain from this infrastructure.

Cimic share price snap shot

Cimic shares have been in the red in the past 12 months, plummeting almost 29%. Year to date, the company’s shares are down 26%.

In contrast, the S&P/ASX 200 Index (ASX: XJO) has returned more than 8% to investors in the past year.

The company commands a market capitalisation of roughly $5.7 billion based on the current share price.

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