Downer EDI

By Dan Stratful

Thursday 10th May 2012

Downer EDI’s (ASX: DOW) shares jumped 5% today as several brokers upgraded the stock to BUY or OUTPERFORM, as concerns begin to ease over its previous Waratah train project write-downs.

DOW’s full year result to 30 June 2011 (FY11) was marred by a net loss after tax of $27.7 million after the inclusion of write-downs associated with the Waratah train project. The underlying net profit result was also 15.7% lower at $166.4 million, which was also far from a good result.

However the company is beginning to bounce back with its first half (1H) result ending 31 December 2011 as net profit of $84.8 million was a vast improvement on the $103.8 million loss in the previous 1H. 1H Total revenue also increased strongly by 14.5% to $3.9 billion and no interim dividends were declared, as the balance sheet continues to recover.

This bodes well for FY12 as 1H earnings before interest and tax (EBIT) of $160.4 million was 21% higher than the previous 1H. Its operational outlook is improving and DOW has provided guidance of underlying EBIT around $340 million and net profit of around $180 million for FY12.

DOW has significant work in hand of over $20 billion comprising the following divisional contributions: Downer Australia $5.8 billion; Downer New Zealand $2.6 billion; Downer Mining $7.0 billion; and Downer Rail $4.9 billion.

Its problems with the Waratah Train contract appear to be in the past, and the company is on the road to recovery. Despite this, its business risk is high and the shares are volatile.

Broker target prices range from $3.90 to $4.30.

Status: GROWTH BUY

DOW’s shares today traded at $3.60

For portfolio, sharemarket and fixed income enquires contact:
Dan Stratful at Investment Research Group (IRG)
Authorised Financial Adviser (AFA)
0800 437 8489, 09 304 0232, dan.stratful@irg.co.nz
**A disclosure statement is available, on request and free of charge.

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