Stock of the Week: Cimic and Corporate Travel

- October 2, 2020 3 MIN READ

Stock of the Week #1; Cimic

CIMIC Group’s 50% owned associate, Ventia, has won a $124 million contract extension with the NSW Land and Housing Corporation.

Under the contract, Ventia will continue to provide maintenance, project and program services in Sydney, Newcastle and the Hunter Valley. The initial agreement was signed in April 2016, and this new extension will take the contract term up to December 2022.

On The Call today, Kochie asked his guests, Mark Moreland from TeamInvest and Tim Haselum from Catapult Wealth, to give their opinions on CIMIC. Tim think its a risky business.

“If you look at the chart, the share price has been smashed and it’s certainly looking cheap. Looking at its history, Cimic group is ex- Leightons and has had a lot of corporate issues. It’s essentially very risky and operates a low margin of 5%.

“We think it’s a buy based on valuations, but investors just need to be aware of what they’re buying it is it is on that risky side.”

Mark says this has not been of interest to the TeamInvest members.

“It’s had a pretty volatile time in the last couple of years. It closed down a company called BICC, which was in the Middle East. The other issue we see is its debt. It’s factoring the debt to the tune of $1.9 billion.

“It hasn’t reported so far, so we don’t have the real take on what’s going on as well as the full impact of the coronavirus pandemic until the annual report comes out in December. It’s currently trading on PE ratio of 3.7, which is really low. There are a lot of moving parts and it’s very difficult to assess this company. It’s not a TeamInvest type of stock but does look pretty cheap on the balance if you’re willing to accept the unknowns.”

Stock of the Week #2; Corporate Travel

The travel packages provider for the business world went in a trading halt today as it attempts to fund its latest acquisition. According to the Financial Review, the fresh equity raising is expected to be worth about $400 million which will be overseen by Morgan Stanley and Morgans.

This comes only a week after Managing Director Jamie Pherous announced that his company had managed to survive the pandemic, with better than expected annual revenue results, and was looking for opportunities to make the most of the crisis. The latest funding could act as a boost to its balance sheet, or bolster it to withstand the economic effects of COVID-19.

Kochie asked his guests today on The Call, Mathan Somasundaram from Deep Data Analytics and Gaurav Sodhi from Intelligent Investor, to give their views on CTD. Gaurav says they have been cautious of Corporate Travel Management in the past.

“We have never bought or recommended CTD, even though, it ticks a lot of boxes. It has a great founder lead management. The historical results have been terrific and it’s nimble and aggressive business. There is also a stickiness in the corporate space that you don’t see in the retail space.

“I think we’ve been wrong about corporate travel management for a long time. This is the time to start looking into it and I am very encouraged by its CEO. I am inclined to be optimistic about it.”

Mathan agrees with Gaurav and thinks that this is a stock that separates the market.

“There have been short stories, accounting issues, so you have to be careful. Generally, the market has been really excited that things could open up and we can switch everything back on. I think there will be opportunities and I think this one is of interest for the market, especially because it’s cheap and it’s been beaten up.

“I think it’s not too bad and if you’re getting into that cap raising you’re probably doing well. This is the time to look at it. You just got to have a stomach for a volatile ride for the next six to twelve months.”