Afternoon Report / Cimic tanks on earnings miss, but is the move overdone? (CIM, LLC) **Buy SH US**

By Market Matters 18 July 19

Cimic tanks on earnings miss, but is the move overdone? (CIM, LLC) **Buy SH US**

Market Matters Afternoon Report 18th July 2019


The market softened again today however overall it was another low volume session where a lack of buying interest rather than anything more sinister saw the index close in the red. Asian markets were weak, Japan the worst of the region down nearly 2% while US Futures tracked lower during our time zone.

On the economic front today, employment data was in line with expectations (5.2% unemployment rate) on the headline number, however the composition of full time v part time jobs was strong.

Economic Data

Energy stocks the biggest drag today following Crude’s decline overnight while a number of company updates caused some big moves in stocks. Nickel miner Western Areas (WSA)  released a strong quarterly update and rallied +5%, a buoyant Nickel price also helped while Cimic (CIM) was a casualty on the downside dropping a substantial ~19%. Harry covers the stock below and thinks the selling is well and truly overdone, particularly given the reinstatement of the on market buy-back.  Elsewhere, Alumina (AWC) was hit early, but recovered late following the  quarterly report overnight from Alcoa while Estia Healthcare (EHE) recovered +3.45% after dropping 5% yesterday on the announcement of a class action.

We covered Domino’s in the AM report today and the stock did close higher – up by 2.4% - and for now we’ll hold our short term position.      

Overall, the ASX 200 lost  -24pts today or -0.36% to 6649. Dow Futures are trading down -89pts / -0.33%. 

ASX 200 Chart

ASX 200 Chart


CIMIC Group (CIM) -18.98%; shares tumbled to 2 year lows following a soft first half result which the company presented after market yesterday. The profit line was marginally better than 1st half 2018 at $367m with the company needing a large second half skew to meet the reiterated guidance of $790m-$840m. The miss was driven by the construction business which accounts for nearly half of CIMIC’s earnings. Much of the 15% decline here was felt in its Asian market where the company is facing backlash from alleged defects in construction works in Hong Kong. The tumble was offset by a surge in the mining division which saw profits rise more than 25% - a positive read through for our current holding is Ausdrill (ASL) which rallied by 3.12% to close just shy of our +$2 target.

CIMIC is used to seeing a marginal skew of around 45/55 to the second half earnings which would be enough to meet the lower end of guidance at the full year result. There is also a clear path to achieving this as total work in hand rose 6% in the half. The Australian infrastructure market – where CIMIC is the biggest player – has a solid pipeline for the next few years. The sell off today seems too aggressive given that it isn’t too far off the pace to meet guidance, and the company announcing it will recommence it’s on market buyback which should also be supportive. A weak result in a thinly traded stock on a low volume day = 19% decline. CIM is now back on the MM radar.

Cimic (CIM) Chart

LendLease Group (LLC) 4.75%; announced it has entered into an agreement with Google to build out Silicon Valley – estimated 15 million square feet of residential, retail, hospitality and other community uses in creating suburbs in the particularly under developed area. Work is expected to start in 2021, and pending approval would result in around $US 15b spend over the next 10 to 15 years in the San Francisco Bay area. This is the largest single deal LendLease has made in however it will be 24 months before works begin and plenty of detail still to be fleshed out.

LendLease (LLC) Chart

Broker moves;  While UBS does not provide their research to Bloomberg (which is where the below list comes from) we see today they upgraded their price target on Bingo to $2.70, up +35% on the prior target largely on the back of positive earnings revisions following planned price hikes. We sold BIN recently and are now watching closely, there upcoming results remain the key.  

  • Cimic Downgraded to Underperform at Macquarie; PT A$43.80
  • Cimic Downgraded to Underperform at Credit Suisse; PT A$35
  • OceanaGold Reinstated at Macquarie With Outperform; PT C$5
  • Syrah Downgraded to Underperform at Macquarie; PT A$0.90
  • CSL Downgraded to Neutral at Citi; PT A$239.60
  • Magellan Financial Cut to Underperform at Macquarie; PT A$45
  • G8 Education Downgraded to Neutral at Macquarie; PT A$2.80
  • OceanaGold GDRs Upgraded to Outperform at Macquarie; PT A$5
  • GrainCorp Downgraded to Hold at Morningstar
  • Cochlear Downgraded to Sell at Citi


No changes locally today.

**We are adding the short US S&P 500 ETF to the International Equities Portfolio**

Major Movers Today – Netflix reported after the close in the US overnight and the report was weak. Expect the stock to be lower on open, down around 10%. Weakness over here is a buying opportunity.   

Have a great night

James, Harry  the Market Matters Team


Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.


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