$886m of contracts announced in July

During the month of July, a total of $886m in new contracts were announced by companies in our index. This was a strong result and was underpinned by $550m of contract wins from DOW across Roads, Electricity, Oil & Gas and Iron Ore.

CIM’s half yearly reveals more disappointing cash flow

CIM’s half-yearly report revealed another set of disappointing cash flow numbers with the company delivering negative OCFBIT of $20.5m, versus a positive EBITDA of $982m. This comes after the company continues to unwind its factoring book, which still remains substantial. Excluding changes in factoring, CIM still delivered lackluster 1H20 cash conversion of 56.8%. The company now has a net debt to equity position of 171%, which balloons to 324% if lease and reverse factoring liabilities are included.

DOW raises $400m and undertakes major restructuring

DOW made a number of significant announcements during the month, including a material decline in FY20 profit, significant reductions in the scope of its E&C business units, and a $400m equity raising to strengthen its balance sheet and acquire the remaining outstanding interest in Spotless. The combination of DOW’s initiatives, which is essentially solidifying its urban services focus, should allow for more reliable earnings moving forward. The potential sale of its Mining division would also likely bring in hundreds of millions and allow DOW to further reduce debt.

Victoria enters stage 4, our analysis says for only 6 weeks

After noting a material chance of Victoria entering Stage 4 restrictions during our June newsletter, Victoria ultimately decided to move down that route. Analysis conducted in Bell Potter’s ‘Coronavirus analysis & outlook’ report suggests that Victoria’s 7-day average cases are likely to continue falling after peaking on 5 August, and may reach a 7-day case average of ~75 by mid-September. This should result in the removal of Stage 4 measures and the associated restrictions that brought to the Construction industry.

E&C providers with Mining clients to benefit from inflation?

With gold prices hitting record highs on account of extraordinary stimulus and money printing measures to prevent global economies from collapsing, as the world’s major economies come back on line, this may result in all other commodity prices also moving materially higher. This is already being seen in regards to iron ore and copper. E&C companies with exposure to the Mining industry may thus see increased project activity and opportunities over coming halves.

What to watch in the FY20 reporting season

Key items to analyse and watch in the outlook commentary include the impact of social distancing and border restrictions on productivity and thus margins, whether Mining and Resources companies are showing signs of bringing back deferred capital expenditure now that commodities markets have stabilised, and the extent that the coronavirus has exacerbated delays in the award of new construction work.

Authored by Steven Anastasiou – Analyst at Bell Potter Securities, 14 August 2020
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