CIMIC share price volatile following Middle East exit
We look at the details behind CIMIC Group’s exit from the Middle East.
CIMIC Group (ASX: CIM) – a leader in mining, services and public private partnerships – yesterday saw its share price collapse.
The catalyst? The revelation that CIMIC would be exiting the Middle East region: specifically as it related to the company’s 45% interest in BIC Contracting (BICC).
The firm commented that it will instead focus its resources on opportunities across its core markets and geographies.
Yet the immediate impact of this exit is a significant one: with CIM set to ‘recognise a one-off post-tax impact of around $1.8 billion in its 2019 financial statements.’
'The aforementioned impact includes an expect cash outlay net of tax of around $700 million during 2020, as CIMIC's financial statements, representing all of CIMIC's exposure in relation to BICC,' the company further added.
The company has now initiated a ‘confidential M&A process' in relation to its BICC investment. These discussions remain ongoing.
CIMIC will not pay a final 2019 dividend as a result of this.
Do you own CIMIC Group shares? You can hedge your downside risk by trading CFDs now.
CIMIC share price: the investor response
With the type of bearish zeal one would expect from such news: investors bid CIMIC’s share price some ~20% lower yesterday; with its stock closing out the session at $28.030 per share.
In saying that, CIMIC's stock did rebound modestly today, rising 4.709%, at the time of writing.
Ultimately, it’s been a difficult year for CIMIC shareholders, with the company’s stock currently sitting towards the bottom-end of its 52-week high and low bound. At its 52-week peak, CIMIC traded at $51.50 per share.
It now trades ~40% lower than that.
As a result of this Middle Eastern exit, Macquarie has lowered their share price target on CIMIC to $32.49 per share, from $35.00 per share. The investment bank is currently ‘neutral’ on CIM – with a number of cash conversion uncertainties still hanging over the firm, noted analysts.
Interestingly, Macquarie further wrote:
‘We noted previously that CIM continues to guarantee BICC (Middle East) debt facilities and these had gone up substantially to US$862m in 1H19, up from US$631m at 31 Dec 2018 and US$326m at 31 Dec 2017.’
UBS took a similar view to Macquarie today – noting that the market had been concerned about CIM’s BICC exposure for some time now.
‘We see some positive in CIMIC deciding to put the Middle East venture behind it, as in CIMIC's core market the outlook remains strong,’ UBS analysts however said.
Like Macquarie, in response to this exit, UBS has reduced their share price target on CIMIC CIM – now at $30.41 per share – down from $35.80 per share.
Ready to start hedging? Open an account with IG today to get started.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get spreads from just 0.1% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets