DOW - Downer EDI

[peter2]

This chart is looking much more healthier than it has in the past. Looks like mgt has turned the ship around. It was heading for the rocks. I've only traded this stock once as was bitten by a downgrade. They're were many more downgrades that followed over the years.

 

[So_Cynical]

This chart is looking much more healthier than it has in the past. Looks like mgt has turned the ship around. It was heading for the rocks. I've only traded this stock once as was bitten by a downgrade. They're were many more downgrades that followed over the years.

6 years of ranging, hardly a disaster heading for the rocks at any point, buy weakness sell strength keep a few each time and make a motza...many brokers still have DOW as a sell.

 

[skc]

Downer today announced a bid for SPO at a hefty premium of $1.15 per share, follow overnight raid which netted it 15% of the target. DOW will also be raising capital @ $5.95 on a 2-for-5 renounceable rights issue.

Any thoughts on this deal? It's quite a big transaction for DOW... it'd add 1/3 to it's market cap.

SPO has been a basket case not long after its IPO and has seen its financials deteriorate markedly from the dressed-up under PE ownership. The deal doesn't even require due diligence - so how would DOW know about the state of SPO's assets, details of their major contracts etc?

The deal is also all cash - with DOW shares at multi-year highs (and running +100% in the last 12 months), I am surprised that they didn't use some / lots of script... may be 1 DOW for every 10 SPO shares plus 20c cash would have done the trick. This would only require ~100m new DOW shares + $200m cash, and probably won't need a capital raising at a heavy discount.

The capital raising price of $5.95 is at a substantial discount to DOW's recent share price. Perhaps a large discount is needed because it is quite a big bite. It would be interesting ot see how DOW performs upon trading resumption. My guess is the market won't like it. TERP is $7 for the record.

 

[Wyatt]

Yes that will probably put a nasty bend in the end of a really nice chart over the last 12+ months. Hopefully it is only a 6% haircut. That gap up on 16/3 with volume is of interest, maybe the story got mixed up.

 

[skyQuake]

Being a cash offer makes it more compelling in a hostile bid.
Also a share raid is a lot easier when offering cash!

In the ends its easier to get existing holders to stump up cash than sweet talking management/obstinate funds into taking your dirty dirty script

 

[skc]

Being a cash offer makes it more compelling in a hostile bid.
Also a share raid is a lot easier when offering cash!

In the ends its easier to get existing holders to stump up cash than sweet talking management/obstinate funds into taking your dirty dirty script

Yeah of course...

I just can't help but think that DOW has gone in a bit gun-ho?! Were they bidding against anyone else? A 59% premium is hefty to say the least. I don't see why they can't take their time and engage the target. The SPO management probably would welcome a script based bail out.

Coppo said it well in his report

Spotless used its response this morning to urge shareholders to stand pat as it assesses the “highly conditional” proposal. Is he serious … take the money and just run… This is the greatest get out of jail card for shareholders they have ever seen – don’t throw this one away.

On FY17 forecast earnings, DOW's at $175m and SPO at $85m. So combined earnings with say plus $20m synergies pre-tax you get ~$275m NPAT, over the expanded shares on issue of 595m shares. The calculated EPS is ~46.2cps, which is 15.5% higher than the last reported number of 40cps, in line with DOW's presentation.

So what multiple should/would the market apply to this earning? DOW currently trades at PE~17.5x while SPO at ~14x (at $1.15 bid price).... will DOW enjoy a PE arbitrage freekick? SPO isn't a private business and the market priced it's earnings at 9x yesterday for a reason. The weighed PE (pre-takeover premium) is ~14.5-15x, which is a share price of $6.7-$6.9 (a tad under the TERP). Although I thought DOW share price was looking quite rich as it is... so a downside toward $6 over time isn't out of the question imo.

 

[skc]

This is not looking good...

http://www.afr.com/street-talk/down...ils-to-fly-red-friday-pending-20170323-gv4p4m

As Street Talk first reported on Wednesday, UBS was in the market seeking to sell 45 million Downer shares at or above $5.95 a share. The shares were left over from the institutional portion of its entitlement offer, and were believed to represent about 35 per cent of stock available to fund managers under the raising.

It is understood the auction failed to climb above the $5.95 floor price, which means renouncing shareholders will not be compensated for those rights.

First the insto offer takeup rate was only 65%, then a poor auction on the remainder means the rights are worth nothing. Chances are UBS might be left holding some underwritten shares, and they will almost certainly be left with a bag of shares from the retail offer shortfall as well.

Given the TERP of $7, if DOW opens tomorrow at the cap raising price of $5.95, it would represent a drop of ~$600m in market cap. Coincidentally that's about the premium DOW decided to throw at SPO shareholders.

 

[icemanmelb]

I feel sorry for the retailers if the instos manage to push the price past $5.95.

Ice

This is not looking good...
http://www.afr.com/street-talk/down...ils-to-fly-red-friday-pending-20170323-gv4p4m
First the insto offer takeup rate was only 65%, then a poor auction on the remainder means the rights are worth nothing. Chances are UBS might be left holding some underwritten shares, and they will almost certainly be left with a bag of shares from the retail offer shortfall as well.
Given the TERP of $7, if DOW opens tomorrow at the cap raising price of $5.95, it would represent a drop of ~$600m in market cap. Coincidentally that's about the premium DOW decided to throw at SPO shareholders.

 

[skyQuake]

I feel sorry for the retailers if the instos manage to push the price past $5.95.

Ice

Heard that UBS managed to get some unlucky funds to sub-underwrite most of it. Doubt retail will take up their rights, which means another big pile of shares coming on late april

Wonder if this is a Slater-esque moment for management!

 

[helpme]

I just suffered a very painful loss in DOW shares this morning. Truly very painful. From good gain to loss after a good night's sleep. The rights issues DOWR are pretty worthless now. It is a joke to me. I cannot even cover the brokerage fee if I sell the rights issues. I am not familiar with rights issues. If I simply leave the rights issues alone until they expire, are there any liabilities? Will I be forced to exercise the rights?

This is not looking good...

http://www.afr.com/street-talk/down...ils-to-fly-red-friday-pending-20170323-gv4p4m



First the insto offer takeup rate was only 65%, then a poor auction on the remainder means the rights are worth nothing. Chances are UBS might be left holding some underwritten shares, and they will almost certainly be left with a bag of shares from the retail offer shortfall as well.

Given the TERP of $7, if DOW opens tomorrow at the cap raising price of $5.95, it would represent a drop of ~$600m in market cap. Coincidentally that's about the premium DOW decided to throw at SPO shareholders.

 

[skc]

I just suffered a very painful loss in DOW shares this morning. Truly very painful. From good gain to loss after a good night's sleep. The rights issues DOWR are pretty worthless now. It is a joke to me. I cannot even cover the brokerage fee if I sell the rights issues. I am not familiar with rights issues. If I simply leave the rights issues alone until they expire, are there any liabilities? Will I be forced to exercise the rights?

There are no liabilities attached to the rights. It's a right, not an obligation. If you simply do nothing, the raising broker (UBS in this case) will run a bookbuild of the retail shortfall, and you will still get the benefit of any proceed if the shortfall shares are sold above the issue price of $5.95.

Heard that UBS managed to get some unlucky funds to sub-underwrite most of it. Doubt retail will take up their rights, which means another big pile of shares coming on late april

Wonder if this is a Slater-esque moment for management!

Can they still pull out of the bid? Or it's legally impossible? What would happen to the retail rights issue (and the proceeds raised) if the bid doesn't go ahead? They can choose not to waive the 90% condition and not answer the phone calls from the last 10% of holder who want to accept?! Or could they not accept their own 20% holding citing clerical error? Lol... that would be fking hilarious.

I don't think this is quite Slater-buying-Quindell bad. SPO, whilst a dog's breakfast, is not a fraud - It's a legitimate business that's been around for some time. The free cash flow is poor so it will be a drag on DOW's ROI/ROC for some time... until DOW writes down the acquisition in 12 months time. But DOW is financially strong enough so it won't be fatal... unless of course it runs into trouble on it's other businesses at the same time.

In 5 years time , look up a business school text book on "management hubris" and you will find SGH and DOW appearing as case studies.

 

[Trendnomics]

I just suffered a very painful loss in DOW shares this morning. Truly very painful. From good gain to loss after a good night's sleep. The rights issues DOWR are pretty worthless now. It is a joke to me. I cannot even cover the brokerage fee if I sell the rights issues. I am not familiar with rights issues. If I simply leave the rights issues alone until they expire, are there any liabilities? Will I be forced to exercise the rights?

In the same boat here. Rights might be worth more by next week Friday (Allotment Date + Normal Settlement) - most retail traders (including me) don't currently have their rights and trading is currently on a deferred settlement basis.

 

[Wyatt]

A very calm and reasoned response Trendnomics, another person could express great annoyance by such wealth destruction witnessed today. What would that number be? somewhere close to $1Bn? Clearly all but the board are wrong, who advised them? Someone must be p!ssing themselves laughing and why was the bid so high? SPO must have been on everyone's radar.
Having done a bit of backtesting in similar situations, often a better price can be had after the panic passes, hopefully this is one of those occasions. We will see. The SPO price is 9% shy of the bid price, holders must still think it too good to be true

 

[FuturePlay]

Hi all,

as a Downer shareholder I have finally come to a place where I do not want Downer to enter in to a contract to build and operate Adani's coal mine in Queensland's Galilee Basin. As such, I have registered to be one of the 100 shareholders required to put up a Resolution - for the contract not to be entered - at their AGM to be voted upon.

If you also feel strongly about this relationship not going ahead then please consider being part of the 100 members too. You can register your interest here

If you want to understand more then read on.....

I am fully on-board Downer making sound business decisions and exercising their right to operate a lawful business, but I don't think this is a sound business decision nor a sound decision in respect to its social and environmental impact.

I have been closely following the anti-Adani campaign now since the beginning of the year and in particular a campaign that has been targeting Downer directly (which in itself is concerning). I'm on their newsletter list and so have discovered that this campaign is proposing to put a Resolution up at Downer's AGM - that Downer not go in to a binding contract to build Adani's mine. This needs 100 shareholders to achieve, so please register if you agree this resolution must be put forward to a vote.

Why I think it is a bad idea
I am concerned with Downer's business relationship with Adani for a number of reasons (also see the bottom of this post for a summary I found online - you can be the judge on whether you think it's based on fact of fiction):
- the bad history Adani has in respect to its contractors
- the risk of stranded assets (Adani has been rejected by 14 financial institutions; the future of coal is being contested even by those on the 'right' of politics)
- the contribution that this mine - the largest in the Southern Hemisphere - will have to global warming. The international community - including world leaders and financial institutions - recognises that there must not be any new coal mines.

Summary Sheet
Dear potential supplier to Adani,
Our aim is to provide additional information to you, to enable you to make an informed decision regarding the risk associated in such a business relationship.
Our research considers the economic, social and environmental risks to your business. For all substantiating references, please refer to: https://envirojustice.org.au/adani-brief-documents

Economically, how secure would you feel about being involved with a foreign-based company that:
• Has been rejected for a loan by 14 national and international banks and finance companies
• Has a record of reneging on payments to contractors
• Asks you to invest in technology that is seen by economists, mining companies and financiers as belonging to the last century, and is fast being made obsolete around the globe
• Relies on a complex business structure with bases in the Cayman Islands to conceal money flows and minimise taxation
• Needs a $1billion dollar loan from Australian taxpayers to build their railway
• By nature of you having a business relationship with them, will make you a target of ongoing disruptive action, backed by the broad Australian community?

Socially, how would your reputation be affected if you were associated with a project that:
• Is not supported by most Australians and is internationally condemned
• Has been ‘sold’ on lies to our government and the people
• Overrides the land rights of Australian Native Title holders
• Threatens the Great Barrier Reef and hence the 70,000 jobs associated with the tourism this national treasure generates

Environmentally, do you want to do business with a company that:
• Is facing huge fines for environmental damage in Australia and around the world
• Has the capacity to damage the Great Artesian Basin
• Will increase the risks to our struggling Great Barrier Reef
• Will contribute to accelerating global impacts from climate change, affecting the lives and lifestyles of generations to come
We trust this information provides a more rounded view of a company that promises much, but has a history of delivering little.
Sincerely, for a better world.

 

[So_Cynical]

Hi all,

as a Downer shareholder

How long have you been a shareholder?

 

[Miner]

How long have you been a shareholder?

Hello Future Play
Out of interest and learning Downer lost the court case today in the High Court, I visited DOW thread today.
Noticed So Cynical asked a question to Future back in August 2017 and never received a response.
I have no conflict of interest but as a member of ASF since 2007, would like to know from members who want to raise voice using this forum also have a duty to respond to Member's query.
Future play (please do not mind) if you have posted a lengthy appeal then please do not feel shy to respond of an one liner . This will also demonstrate genuineness and that some one is not using proxy against Adani. I have nothing against or for Adani or Downer but want to see this forum is clean. I am not batting for SC either even if I have a lot of respect on him and his unbiased postings.
Cheers

 

[greggles]

Downer EDI at 8 year highs this morning following yesterday's release of its FY18 financial results and Annual Report.

While annual net profit dropped 61% to $71.4 million from $181.5 million in the previous corresponding period, total revenue for the Group increased by $4.8 billion to $12.6 billion, up 61.5%.

DOW declared a 50% franked final dividend of 14c per share.

It is currently trading at $7.835, up 4.33% from yesterday's close.

 

[Trav.]

I like the look of the Downer chart and BO possibility in the new year @ $6.70. i know that they are won several contracts recently with BHP and looking at their announcements they have also won a $420M Parramatta Light Rail Contract

 

[Trav.]

Well good to see Downer doing well. Lucky I didn't buy as then they would have been in trouble.

6 Feb = closed @ $7.56 and just gone ex Div on the 20 Feb now @ $7.21.

Can it break the $8 mark this year ? Last time was 2009

 

[Smurf1976]

Can it break the $8 mark this year ? Last time was 2009

I note two previous tops at $8.61 (2006) and $8.60 (early 2010) so around there might be a possible target it it can get past the 2018 high of $7.98.