AUSTRALIA CIM AU Price (at 05:10, 31 Mar 2017 GMT) Outperform A$35.93 Valuation A$ 42.69 - DCF (WACC 8.5%, beta 1.4, ERP 5.0%, RFR 3.3%, TGR 2.0%) 12-month target A$ 42.50 12-month TSR % +22.0 Volatility Index Medium GICS sector Capital Goods Market cap A$m 11,650 30-day avg turnover A$m 14.0 Number shares on issue m 324.3 Investment fundamentals Year end 31 Dec 2016A 2017E 2018E 2019E Revenue m 13,535 16,441 17,129 17,731 EBIT m 758 979 1,066 1,115 Reported profit m 580 698 759 803 Adjusted profit m 580 698 759 803 Gross cashflow m 890 1,062 1,126 1,158 CFPS 270.3 327.6 347.2 357.1 CFPS growth % -13.5 21.2 6.0 2.9 PGCFPS x 13.3 11.0 10.3 10.1 PGCFPS rel x 1.21 1.22 1.08 1.07 EPS adj 176.3 215.3 234.0 247.5 EPS adj growth % 14.7 22.2 8.7 5.8 PER adj x 20.4 16.7 15.4 14.5 PER rel x 1.05 1.05 0.97 0.93 Total DPS 110.0 129.2 140.4 148.5 Total div yield % 3.1 3.6 3.9 4.1 Franking % 100 100 100 100 ROA % 7.7 10.1 11.1 11.2 ROE % 15.7 20.2 20.2 19.7 EV/EBITDA x 10.3 8.3 7.8 7.6 Net debt/equity % -12.4-21.8-34.1-41.9 P/BV x 3.5 3.2 3.0 2.8 CIM AU vs ASX 100, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, April 2017 (all figures in AUD unless noted) 3 April 2017 Macquarie Securities (Australia) Limited Preferred bidder for Western Distributor Event CIM subsidiary CPB named as preferred bidder with John Holland for $5.5bn Western Distributor (now known as the West Gate Tunnel Project). Impact Size of prize for CIM is a $2.5bn share spread over five years, or $500m pa. Latter is 3-4% of annual revenue. This should see positive WIH momentum and underpin confidence in future earnings growth beyond FY17 (we forecast 4% revenue growth in both FY18 and FY19). As per our recent infrastructure report there are still Sydney and Melbourne metro bids to come later in year. Project fits with CBP's and John Holland's strong road and tunneling capability and experience. Contract structure is design and construct (D&C) which is generally fixed price. Hence risk management is key; CBP's road and tunnelling experience and JV structure are important in this regard. CIM JV is one of the three bidders for the $6.5bn Melbourne Metro PPP. The preferred bidder is expected to be announced in 3Q17, and it is also one of the two bidders for the multi-billion Sydney Metro project, with the likely award in 4Q17. Final sign-offs by the end of 2017. The design will now be assessed through an independent Environment Effect Statement process, which will be exhibited in mid-2017. D&C contract award and financial close is expected following this process, by the end of 2017. A significant project. The West Gate Tunnel will deliver a second river crossing for Melbourne, relieving pressure across the city s M1 corridor. CIM s recent result was at the upper end of guidance, and FY17 guidance implies 10-21% NPAT growth on pcp. CIM has hit the upper end of guidance in each of the last two years which we think provides a similar template in FY17 (our $698m forecast is 5% ahead of consensus and at the upper end of $640-700m guidance). CIM reports Q1 earnings on 13 April. Earnings and target price revision No change. Price catalyst 12-month price target: A$42.50 based on a DCF methodology. Catalyst: Q1 earnings 13 April Action and recommendation Maintain Outperform. Please refer to page 5 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Analysis Fig 1 List of major infrastructure projects in bid this year Project Contract Type Approx. Value Preferred tender Date Completion Bidding Consortia Western Distributor D&C $5.5bn Q2 2017 4Q 2022 1. Lend Lease/Bouygues; 2. CPB/John Holland; 3. Salini Impregilo Melbourne Metro PPP PPP $6.5bn Q3 2017 3Q 2023 1. Continuum Victoria comprising ACCIONA Infrastructure, Ferrovial Agroman, Honeywell, and Plenary Origination; 2. Cross Yarra Partnership comprising Lendlease Engineering, John Holland, Bouygues Construction and Capella Capital; and 3. Moving Melbourne Together comprising CIMIC's Pacific Partnerships, CPB Contractors, Ghella, Salini Impregilo, Serco and Macquarie Capital. Sydney Metro PPP PPP $10bn 2H2017 4Q 2024 1. John Holland CPB Ghella Joint Venture Source: FactSet, Macquarie Research, April 2017 2. Ferrovial, Acciona Ltd and BAM Joint Venture 3 April 2017 2
Fig 2 CIM estimate summary Interim results 1H/15A 2H/15A 1H/16A 2H/16A Profit & Loss 2015A 2016A 2017E 2018E Revenue (excl. int & asset sales) 8,680.4 7,538.3 6,298.2 7,236.3 Revenue (excl. int & asset sales) $m 16,218.7 13,534.5 16,441.0 17,128.6 growth % -33% -17% 21% 4% EBITDA $m 692.1 690.6 515.2 580.6 EBITDA $m 1,382.7 1,095.8 1,357.6 1,440.9 Depreciation $m 228.4 268.2 139.8 165.1 Depreciation $m 496.6 304.9 346.4 341.9 Amortisation $m 24.4 22.8 16.7 15.8 Amortisation $m 47.2 32.5 32.5 32.5 EBIT $m 439.3 399.6 358.7 399.7 EBIT $m 838.9 758.4 978.7 1,066.4 Net Interest expense $m 75.7 28.2 8.0 10.0 Net interest expense $m 103.9 18.0 35.2 17.5 Pre-Tax Profit $m 363.6 371.4 350.7 389.7 Pre-Tax Profit $m 735.0 740.4 943.5 1,048.9 Tax Expense $m 105.4 115.2 106.1 81.9 Tax Expense $m 220.6 188.0 260.3 297.7 Net Profit $m 258.2 256.2 244.6 307.8 Net Profit $m 514.4 552.4 683.2 751.2 Outside equity interests $m 1.0-7.0-20.6-7.3 Outside equity interests $m -6.0-27.9-15.0-7.5 Net Abn/Extra $m 0.0 0.0 0.0 0.0 Net Abn/Extra $m 0.0 0.0 0.0 0.0 Reported Earnings $m 257.2 263.2 265.2 315.1 Reported Earnings $m 520.4 580.3 698.2 758.7 Adjusted Earnings $m 257.2 263.2 265.2 315.1 Adjusted Earnings $m 520.4 580.3 698.2 758.7 Gross Cashflow $m 361.6 602.2 514.2 542.6 Gross Cashflow $m 2,128.0 1,237.3 1,322.5 1,423.4 EPS (Adj/dil) c 76.0 77.8 79.7 96.6 EPS (adj/diluted) c 153.7 176.6 215.3 234.0 EPS growth % 6.2-19.9-16.6 4.9 EPS growth % -16.6 14.9 22.0 8.7 CFPS c 106.8 177.9 154.5 166.4 PE (adj) x 23.4 20.4 16.7 15.4 CFPS Growth % -51% -13% -13% 8% CFPS c 284.7 321.6 327.6 347.2 EBITDA margin % 8.0 9.2 8.2 8.0 CFPS Growth % -32.9 12.9 1.9 6.0 EBIT margin % 5.1 5.3 5.7 5.5 PGCFPS x 12.6 11.2 11.0 10.4 NPAT margin % 3.0 3.5 4.2 4.4 DPS c 96.0 110.0 129.2 140.4 Earnings split % 44.3 55.7 38.0 45.1 Yield % 2.7 3.1 3.6 3.9 Franking % 100.0 100.0 100.0 100.0 Profit and Loss ratios 2015A 2016A 2017E 2018E Cashflow Analysis 2015A 2016A 2017E 2018E Revenue Growth % -32.6-16.6 21.5 4.2 EBIT Growth % -23.0-9.6 29.1 9.0 Pre-tax Profit $m 735.0 740.4 943.5 1,048.9 EBITDA margin % 8.5 8.1 8.3 8.4 Depreciation & Amortisation $m 543.8 337.4 378.9 374.4 EBIT margin % 5.2 5.6 6.0 6.2 Tax Paid $m -315.0-21.0-260.3-297.7 Effective tax rate % 30.0 25.4 27.6 28.4 Gross cashflow $m 963.8 1,056.8 1,062.2 1,125.7 Payout ratio % 62.4 62.3 60.0 60.0 Changes in working capital $m 404.0 263.6 70.9 104.7 EV/EBIT x 13.2 15.1 11.1 9.7 Other $m 82.4-193.4-93.3 13.7 EV/EBITDA x 8.0 10.4 8.0 7.2 Operating Cashflow $m 1,450.2 1,127.0 1,039.7 1,244.1 EV/Sales x 0.7 0.8 0.7 0.6 Acquisitions/divestments $m 1,372.9 68.1 0.0 0.0 Capex - Plant & Equip. $m -266.3-280.2-300.0-300.0 Balance sheet ratios Asset Sales $m 156.2 97.8 50.0 50.0 ROE % 13.3 15.7 20.2 20.2 Other $m -15.2-167.4 0.0 0.0 ROA % 9.3 9.5 12.3 14.3 Investing cashflow $m 1,247.6-281.7-250.0-250.0 ROFE % 21.6 25.7 34.1 39.4 Dividend (ordinary) $m -385.9-333.1-418.9-455.2 Net Debt $m -1111.5-409.3-780.1-1319.0 Equity raised $m 0.0-425.9 0.0 0.0 Net Debt/Equity % (27.0) (12.4) (21.8) (34.1) Other $m -4.1-407.8 0.0 0.0 Interest Cover x 8.1 42.1 27.8 61.0 Financing cashflow $m -2,558.9-1,443.4-418.9-655.2 Price/NTA x 3.4 5.3 4.7 4.1 NTA per share $ 10.60 6.77 7.73 8.77 Net Change in cash/debt $m 2,307.8-321.5 370.8 538.9 EFPOWA m 339.2 328.6 324.3 324.3 Historical performance 2012A 2013A 2014A 2015A Balance Sheet 2015A 2016A 2017E 2018E Revenue $m 23,069.2 24,348.8 24,071.0 16,218.7 Cash $m 2,167.8 1,576.5 1,947.3 2,286.2 EBITDA $m 1,754.7 1,908.3 1,666.7 1,382.7 Receivables $m 2,659.6 3,209.6 2,381.2 2,532.5 Depreciation/Amortisation $m 1,056.5 932.2 577.9 543.8 Inventories $m 264.0 213.0 72.6 74.1 EBIT $m 698.2 976.1 1,088.8 838.9 Investments $m 1,198.8 751.9 751.9 751.9 Net interest expense $m 152.3 193.2 152.2 103.9 Property, plant & equipment $m 1,312.8 1,355.7 1,259.3 1,167.3 Pre-Tax Profit $m 545.9 782.9 936.6 735.0 Intangibles $m 527.4 1,125.9 1,093.4 1,060.9 Tax Expense $m 106.0 207.2 314.4 220.6 Other Assets $m 1,546.4 1,788.5 1,888.5 1,888.5 Net Profit $m 447.9 575.7 622.2 514.4 Total Assets $m 9,676.8 10,021.1 9,394.2 9,761.5 Net Abn/Extra $m 2.2-75.0 56.4 0.0 Payables $m 4,007.3 5,008.1 4,110.2 4,367.8 Short Term Debt $m 217.4 618.2 618.2 618.2 EPS (adj/dil) c 133.1 173.5 184.3 153.7 Long Term Debt $m 838.9 549.0 549.0 349.0 EPS growth % na 30.3 6.2-16.6 Other Liabilities $m 497.9 533.4 540.1 553.8 Ordinary DPS c 80.0 105.0 45.0 60.0 Total Liabilities $m 5,561.5 6,708.7 5,817.5 5,888.8 EBITDA margin % 7.6 7.8 6.9 8.5 Shareholders Funds $m 4,092.8 3,322.2 3,601.5 3,905.0 EBIT margin % 3.0 4.0 4.5 5.2 Minority Interests $m 22.5-9.8-24.8-32.3 ROE % 16.2 19.2 17.8 13.3 Total Shareholders Equity $m 4,115.3 3,312.4 3,576.7 3,872.7 ROFE % 19.7 26.4 25.9 21.6 EFPOWA m 336.5 336.5 336.5 339.2 Total Funds Employed $m 9,676.8 10,021.1 9,394.2 9,761.5 Source: Company data, Macquarie Research, April 2017 3 April 2017 3
Macquarie Quant View The quant model currently holds a strong positive view on. The strongest style exposure is Quality, indicating this stock is likely to have a superior and more stable underlying earnings stream. The weakest style exposure is Valuations, indicating this stock is over-priced in the market relative to its peers. 65/1899 Global rank in Capital Goods % of BUY recommendations 12% (1/8) Number of Price Target downgrades 1 Number of Price Target upgrades 1 Fundamentals Attractive Quant Local market rank Global sector rank Displays where the company s ranked based on the fundamental consensus Price Target and Macquarie s Quantitative Alpha model. Two rankings: Local market (Australia & NZ) and Global sector (Capital Goods) Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score. 1.6 1.6 1.3 1.2 1.1 0.3-3.0-2.0-1.0 0.0 1.0 2.0 3.0-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Valuations Growth Profitability Earnings Momentum Price Momentum Quality Macquarie Earnings Sentiment Indicator The Macquarie Sentiment Indicator is an enhanced earnings revisions signal that favours analysts who have more timely and higher conviction revisions. Current score shown below. Drivers of Stock Return Breakdown of 1 year total return (local currency) into returns from dividends, changes in forward earnings estimates and the resulting change in earnings multiple. 0.6 0.5 0.2 0.8-0.1 0.1-3.0-2.0-1.0 0.0 1.0 2.0 3.0-100% -50% 0% 50% 100% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. Price to Book FY0 Price to Book LTM Price to Book NTM Price to Book FY1 Return on Equity FY1 Momentum 6 Month Relative Turnover Turnover (USD) 20 Day Negatives Positives -21% -24% -24% -25% -40% -20% 0% 20% 40% 33% 31% 38% 37% How it looks on the Alpha model A more granular view of the underlying style scores that drive the alpha (higher is better) and the percentile rank relative to the sector and market. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score 1.64-0.03 0.19 0.03 0.42-0.02 0.57 0.83-1.05 0.74 0.94 Percentile relative to sector(/1899) Percentile relative to market(/421) 0 50 100 0 50 100 0 0 1 1 Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com) 3 April 2017 4
Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 60 100% in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 December 2016 AU/NZ Asia RSA USA CA EUR Outperform 57.53% 50.72% 45.57% 42.28% 60.58% 52.79% (for global coverage by Macquarie, 8.71% of stocks followed are investment banking clients) Neutral 33.90% 33.97% 43.04% 50.11% 37.23% 35.62% (for global coverage by Macquarie, 8.05% of stocks followed are investment banking clients) Underperform 8.56% 15.30% 11.39% 7.61% 2.19% 11.59% (for global coverage by Macquarie, 4.63% of stocks followed are investment banking clients) CIM AU vs ASX 100, & rec history (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, April 2017 12-month target price methodology CIM AU: A$42.50 based on a DCF methodology Company-specific disclosures: CIM AU: MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates has provided Ltd with investment advisory services in the past 12 months, for which it received compensation. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates is currently advising Macmahon Holdings Ltd in connection with Limited's final unconditional offer to acquire the shares in Macmahon Holdings Limited that it does not already own, for which it expects to receive or intends to seek compensation. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures. Date Stock Code (BBG code) Recommendation Target Price 08-Feb-2017 CIM AU Outperform A$42.50 31-Jan-2017 CIM AU Neutral A$30.35 19-Jul-2016 CIM AU Underperform A$30.35 06-Apr-2016 CIM AU Neutral A$35.85 10-Feb-2016 CIM AU Outperform A$28.50 20-Jan-2016 CIM AU Outperform A$28.00 29-Oct-2015 CIM AU Outperform A$28.65 23-Jul-2015 CIM AU Outperform A$25.71 27-Apr-2015 CIM AU Outperform A$23.05 06-May-2014 CIM AU Underperform A$19.41 Target price risk disclosures: CIM AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. Also chasing underclaims outcome around which are uncertain and may impact profit. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. 3 April 2017 5
This publication was disseminated on 03 April 2017 at 09:47 UTC. Macquarie Wealth Management General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN 58 002 832 126, AFSL 238947, a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Wealth Management, a division of Macquarie Equities Limited ABN 41 002 574 923 AFSL 237504 ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN 46 008 583 542, AFSL No. 237502) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989. Apart from Macquarie Bank Limited ABN 46 008 583 542 (MBL), any MGL subsidiary noted in this research,, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research contains general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures Macquarie Group 3 April 2017 6