Earnings and the SP are mostly under pressure because of Covid impacts causing delays in construction activity.....look in may last year analysts were calling cimic one of the worlds best construction companies. Plus speculation was there when Cimic was $24 a share that ACS would privatise it and then sell it off.....
BRIDGET CARTERDATAROOM EDITOR10:00PM MAY 25, 2020NO COMMENTSThe commitment of ACS to its Australian construction and engineering services subsidiary CIMIC is continuing to be called into question, with reports out of Spain that the parent company may exit the local market.The Spanish language newspaper El Confidencial has reported in the past week that ACS’s management is growing increasingly concerned about its own debt levels and the rate that ACS is burning cash, and as a result all or parts of its Australian operations could be placed up for sale.It even suggests that a Chinese suitor made an approach for CIMIC around December.READ NEXTDISCRIMINATION CASE‘Lost trust’ at Deloitte, court hearsLACHLAN MOFFET GRAYHowever, the report said that no decisions had been made on divestments.DataRoom reported last year that private equity firm Apollo Global Management was in talks about an acquisition of CIMIC’s Australian mining services subsidiary Thiess.Already, the private equity firm jointly owns the Ventia services business with CIMIC, which was formed out of the sale of a stake in the group’s services assets when the company was previously called Leighton Holdings.The talks ended without a transaction, around the time it was announced that Ventia had bought Broadspectrum from Ferrovial for a $485m equity value.Hochtief, which is controlled by Spain’s ACS, bought Leighton Holdings in a $1.2bn proportional takeover in 2014 that saw it gain control of just under 70 per cent of the company.It later sold off other subsidiaries, including its John Holland business, now owned by the state-backed China Communications Construction Company.ACS is wrestling with the same challenges other construction companies will be facing worldwide as they come to grips with the fallout from the global COVID-19 health pandemic.New & improved business newsletter. Get the edge with AM and PM briefings, plus breaking news alerts in your inbox.Sign upHowever, its problems have been compounded by large debt that has come following the €16.5bn acquisition of toll-road operator Abertis about two years ago as part of a consortium.In Australia, one group in the real estate industry said that a workbook of $15bn worth of projects were now all on hold or had been deferred on the back of the economic fallout from the crisis. This is as banks stop lending on new projects and instead turn their attention to non-performing loans.This month, listed Australian and New Zealand construction group Fletcher Building announced that 1500 jobs would go on the back of a coronavirus-related slowdown and with a weaker housing market.The Spanish report said that CIMIC contributed €1.72bn ($2.9bn) of revenue and Hochtief €2.5bn. The remaining €2.28bn came from elsewhere.ACS counts Goldman Sachs and JPMorgan among its advisers, so both banks could be drafted in should divestments be made.JPMorgan was used last year for efforts to sell Thiess.Earlier this year, CIMIC, which is Australia’s biggest construction company, replaced its chief executive, Michael Wright, just two years into the job after sinking to a $1bn annual loss.This came after a $1.8bn impairment on its Middle East operations and a move to suspend dividends.Its market value is almost half what it was a year ago at about $7.57bn.It told the market in January that it planned to offload a 45 per cent non-controlling stake in BICC, previously called Al Habtoor Leighton, although some question whether buyers exist for the operation.Amid the COVID-19 outbreak, reaching its 2020 financial year net profit of $810m-$850m is expected to be tough.CIMIC has expanded in recent years by acquiring companies including engineering services company UGL and mineral processing company Sedgman, yet some believe that selling the Australian business may not be that easy.The simplest part to divest is Theiss, for which buyers are not thought to be prepared to meet its price expectations, while its Indonesian assets are likely to be difficult to sell because of the workforce laws held by the country that results in significant payouts of entitlement to its employees.Compounding matters for CIMIC has been a dispute over Melbourne’s $6.7bn West Gate Tunnel. It has placed pressure on CIMIC’s new boss, Juan Santamaria, after CPB and John Holland advised toll-road operator Transurban in late January that they were terminating the contract over contaminated soil concerns.The thinking is that the CIMIC investment for ACS has not been as easy as originally expected due to cultural differences and that it needs to be run from Australia rather than Spain.But others are less sure that the Spaniards will stage an exit.Analysts say CIMIC is arguably the best construction business in the world and one they believe the Spanish will want to retain.BRIDGET CARTERDATAROOM EDITOR
CIM Price at posting:
$18.90 Sentiment: Buy Disclosure: Held
