DOW - Downer EDI

Downer Group will stop bidding for construction work in many of its traditional markets, with chief executive Grant Fenn declaring on Wednesday “we’re out” of solar, iron ore and coal projects. Downer delivered a delivered a 35.7 per cent fall in after-tax profits for the first half of the financial year. Mr Fenn admitted the result was “disappointing”, and pointed to the risks in the company’s fixed-price bids on major projects.

"Despite Downer’s service businesses performing well, construction losses have driven a disappointing result for the group in the first half of the financial year,” he told analysts on an earnings call on Wednesday. “Our engineering and construction business will no longer tender for hard dollar construction contracts in the solar, coal, iron ore and industrial sectors."

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Mr Fenn said Downer’s decision to pull out of solar construction projects was “disappointing but inevitable” given the dearth of new investment in the sector over the last year.

“Developers, contractors and bankers have all struggled to come to terms with the risk of large power loss factors, grid stability problems, connection problems, and equipment performance issues,” he said “These problems will no doubt be sorted out in time, but right now we don’t see a construction market in the short to medium term that will accept our terms and risk position on these matters. So we’re out.”

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Mr Fenn said Downer intended to continue “strictly limiting” the risk it took on in its construction division, which had driven down the number of contracts it will bid on. Construction work is now worth only $5.7bn of the $47.4bn worth of work in hand at Downer, and the bulk of that is smaller, low risk contracts.

“To accelerate our shift to less volatile service markets we have decided to focus our major construction efforts on areas where we have competitive differentiation,” he said. “That’s in transport, including road rail and systems, high voltage transmission and substations, telecommunications, water and aspects of wind farms."

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- and maybe a more rational market for others

Equity raising - Entitlement offer, 1 for every 5.58 to raise 400M at $3.75 per share.

A bit of a discount but not crazy cheap, money to be used to complete the spotless buyout.

So_Cynical said:

Equity raising - Entitlement offer, 1 for every 5.58 to raise 400M at $3.75 per share.

A bit of a discount but not crazy cheap, money to be used to complete the spotless buyout.

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I have been tracking Downer but could not time the right issue. Good time as they are going through significant changes.

Good ol' DOW. This one's been on my "never to be traded" list forever. During the days when they were making the train carriages for NSW they reported poor news almost every quarter/half. The price would always tank and I vowed to never trade it.

Have mgt got it right yet? Is mgt the same? Probably not, I would hope.

Another bullish price break-out but not for me. I'm posting it for discussion only.
Is DOW going to benefit from the Gov't incentives for manufacturers?

Word in my sector is that the NBN contract they won for some of the network work for NBN in NT, WA & SA will be a disaster for them. They massively under tendered SSM who knew exactly how much margin was in the work as they had been doing it for quite a few years. Contractors refusing to onboard with them because their rates are so much lower. I dont imagine its a big part of their overall revenue, but it looks like further evidence of management not executing very well.

Certainly heading in the right direction chart wise but I do hear what all of you are saying.

DOWNER AWARDED ELECTRICAL FIELD SERVICES CONTRACT WITH POWERCO
Downer EDI Limited (Downer) today announced it had been awarded an Electrical Field Services Agreement
with Powerco worth approximately $360 million over a maximum term of five years.
Commencing in July 2022, the contract is for an initial three-year term, with two one-year extension options.
The contract replaces Downer’s current Electrical Field Services Agreement, which ends in June, and will
see Downer provide construction, maintenance and fault repair services to Powerco’s electricity distribution
network on New Zealand’s North Island.
The Chief Executive Officer of Downer, Grant Fenn, said the contract reflected Downer’s strong performance
for Powerco over the past eight years.
“This contract strengthens our position as market leader in New Zealand’s Utilities sector,” Mr Fenn said.
“It is a strong endorsement of Downer’s capability and underlines the strength of our ongoing, long-term
relationships with our customers.”
The Chief Executive Officer of Downer New Zealand, Steve Killeen, said he was pleased to be continuing
Downer’s relationship with Powerco.
“This extension demonstrates our ability to bring world-leading insights and solutions that deliver costeffectiveness, safety, and reliability for our customers,” Mr Killeen said.
Authorised for release by Downer’s Chief Executive Officer, Grant Fenn.

i hold DOW ( bought March 2020 @ $3.63 )

DOWNER AWARDED $800 MILLION IN ROAD MAINTENANCE CONTRACTS

Downer EDI Limited (Downer) today announced it had been awarded two road maintenance contracts by
Auckland Transport, valued at approximately $800 million over a maximum term of 10 years.
The contracts commence on 1 July 2022, with initial five-year terms plus five-year extension options.
Downer will act as stewards of Auckland Transport’s Central network and North Rural network, delivering
maintenance and renewal activities and emergency repairs.
The contracts expand Downer’s strong working relationship with Auckland Transport, which includes the
delivery of the award-winning Downtown Program.
The Chief Executive Officer of Downer, Grant Fenn, said Downer is the leader in road maintenance services
in Australia and New Zealand.
“Downer maintains 28,000 kilometres of roads across Australia and 25,000 kilometres across New Zealand,”
Mr Fenn said.
“Downer has been maintaining roads in Auckland for more than 30 years, and we look forward to continue
working closely with Auckland Transport to deliver reliable road networks to ensure efficient and safe
journeys.”
The Chief Executive Officer of Downer New Zealand, Steve Killeen, said the contracts were an opportunity to
deliver positive social and sustainable outcomes for Downer’s customers and communities.
“Our collaborative relationship with Auckland Transport has given Downer the opportunity to continually
improve and develop our services. We’re committed to making a positive impact on the communities we
serve by delivering high-performing, sustainable and reliable solutions,” Mr Killeen said.
Authorised for release by Downer’s Chief Executive Officer, Grant Fenn.


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DYOR

i hold DOW i bought in March 2020 ( @ $3.64 )

Down $1.025 (21.35%)

Added this to my alert list several months ago, at a very low price but what I thought was fair. today it crashed to that price.

What's happened?

Seems to be cheap. After this ajustment they are still guiding to fy23 NPATA $210m - 230m, athough this is highly qualified new guidance. But assuming I am comparing like with like, NPAT FY22 was $152m?
Yet today trading 45c below book value for an ok if not exciting ROE.
They have endured widespead setbacks recently, citing weather and roads, manpower shortage and supply chain disruption. They say these are dissipating but not in time for fy23 results.

Not Held
Not Buying

Whenever I see "accounting irregularities" it's a sell. They're like cockroaches, there's never just one of them.

finicky said:

Seems to be cheap. After this ajustment they are still guiding to fy23 NPATA $210m - 230m, athough this is highly qualified new guidance. But assuming I am comparing like with like, NPAT FY22 was $152m?
Yet today trading 45c below book value for an ok if not exciting ROE.
They have endured widespead setbacks recently, citing weather and roads, manpower shortage and supply chain disruption. They say these are dissipating but not in time for fy23 results.

Not Held
Not Buying

View attachment 150251

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When you take out intangibles from Downers balance sheet they have only $100 million in net assets... I mentioned on either the PRN or MAH thread last week that those companies traded at around 115% and 60% of net assets minus intangibles, well DOW is 2500%...?

I never pay much attention to reported profits as it's an easy number to manipulate - but cashflow is very hard to manipulate and their cash generation is still ok. Although some large engineering/contracting firms have a tendency to frontload revenue in a contract to make the numbers look better, so even then you really have to look at 3-4 years of reports to work out what's really happening. Personally, I can't fathom how Downer trades this high even after today's smashing.

Will there be fines/class actions now?

peter2 said:

Whenever I see "accounting irregularities" it's a sell. They're like cockroaches, there's never just one of them.

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I agree with that, and whenever I see 'share buy backs' as well I usually see it as a sell signal. It's financial engineering and rarely a good idea - especially when a company has a very high debt level and relies on contracts which will always have big working capital swings. Maybe at a public level it will be swept up as being a problem in "XYZ Division", but I think whatever has gone on with accounting irregularities is probably not a one-off rogue department but a diseased culture from the top down.

peter2 said:

Whenever I see "accounting irregularities" it's a sell. They're like cockroaches, there's never just one of them.

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Well said @peter2
Fat prophets already declared Sell too

Miner said:

Well said @peter2
Fat prophets already declared Sell too

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am looking for sub $3 to add more

aren't mainly big engineering companies left in Australia

am thinking there will be a discrete lifeline if needed

but more pain to come first

divs4ever said:

am looking for sub $3 to add more

aren't mainly big engineering companies left in Australia

am thinking there will be a discrete lifeline if needed

but more pain to come first

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Looks like sub 3 not coming in near future unless more financial irregularities are exposed.
I was also hoping to get $3 but no luck. DNH

as someone else commented recently , 'financial irregularities are like cockroaches '

it would be interesting to see more details on these irregularities , for example did they acquire such problems ( say with the Spotless acquisition ) or were they home-grown ( say a gambling addict in the accounts section ) , or maybe it is just different accounting systems across the different company divisions

for example over the decades i have observed ( or participated in ) several methods of 'stock-takes ' ( some are absolutely hilarious in the retelling )

Chart update.
There's money in potholes.

frugal.rock said:

Chart update.
There's money in potholes.

View attachment 156191

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yes , but some of the bigger potholes are inside the company

( i hold )

tread carefully

Felix signs record expansion deal with Downer Group

Key highlights -
Felix signs a record expansion deal with Downer Group, a leading ASX and NZX-listed integrated services provider -
Under the 3-year enterprise agreement, Downer will utilise Felix’s full suite of modules generating $321k ARR
- Downer are a long-term user of InEight’s construction project management platform and intend to adopt the Felix and InEight connected solution
- Record new Contractor ARR achieved in Q1 FY24 of $800k, representing a 32% increase on the prior quarterly record (Q3 FY23: $606k)

BRISBANE Australia, 2 October 2023:
Felix Group Holdings Ltd (ASX: FLX) (“Felix” or the “Company”) is pleased to announce it has signed a record expansion deal with Downer Group (ASX: DOW) (NZX: DOW) (“Downer”), a leading ASX and NZX-listed integrated services provider.
Under the 3-year expansion deal, Downer will roll-out Felix’s full suite of modules across all divisions of the organisation, for an annual recurring licencing fee of $321k.
This represents ~8% of Felix’s Contractor ARR as at Q4 FY23 of $4.0m.
The agreement only includes licences for a small subset of their workforce of 32,000 people, providing significant additional revenue expansion opportunities as the number of users increases.
The expansion follows smaller licences within Downer’s Infrastructure Projects and Estimating divisions.
Downer are also a long-term user of InEight’s construction project management platform and intend to adopt the Felix and InEight connected solution, highlighting the strong commercial and strategic value of the partnership.
The contract with Downer demonstrates the continued strong sales momentum seen in early FY24, with record new Contractor ARR achieved in Q1 FY24 of $800k, representing a 32% increase on the prior quarterly record (Q3 FY23: $606k).
Recent contract wins include those Felix’s Co-Founder and CEO, Mike Davis commented: “We are pleased to announce the expansion of the Downer contract to an enterprise-wide deal, which is our largest expansion to date.
Our strong sales momentum, including Q1 FY24 being a record quarter by new Contractor ARR contribution, is supported by our customers need for oversight and visibility over critical supply chain, ESG and legislative issues.
We are incredibly excited about the opportunity ahead of us as we progress a number of significant opportunities through our pipeline, with each of these improving our operating leverage and accelerating our pathway towards cashflow breakeven.” with NRW Holdings (ASX: NWH), a large ASX-listed gold miner, Sydney Water’s West Region Delivery Team and MMA Offshore (ASX.MRM).

i hold DOW

let's see what impact it has on DOW's bottom line

DOWNER AWARDED NEW $600 MILLION WATER CONTRACT IN QUEENSLAND

Downer EDI Limited (Downer) today announced it had been awarded a new contract by Unitywater to deliver water, sewerage and recycled water services in south-east Queensland.
The contract commences in May 2024, with an initial five-year term plus three two-year extension options.
The contract is valued at an estimated $600 million to Downer over the initial five-year term.
Under the contract, Downer will be responsible for delivering capital works for the water, sewerage and recycled water networks within the Sunshine Coast and Moreton Bay regions, as well as works across Unitywater’s 17 sewerage treatment plants in the Sunshine Coast, Noosa and Moreton Bay regions.
The programs will be delivered under a collaborative, target cost commercial structure.

The full scope of work includes program management services, stakeholder management, business case development, and construction and commissioning of water and wastewater assets.

The Chief Executive Officer of Downer Group, Peter Tompkins, said the contract reinforced Downer’s position as a leading provider of water and wastewater services in Australia and New Zealand.

“With the award of this contract, Downer now supports water and wastewater services to more than 13 million Australians – more than half the Australian population,” Mr Tompkins said.

“This is an important contract award for Downer in a growth sector where Downer has industry leading expertise. We have previously partnered with Unitywater on a range of projects, however, this new long-term collaborative style contract will significantly expand our relationship.

“We look forward to working closely with Unitywater to deliver these vital services to this rapidly growing region in south-east Queensland, and contributing to Unitywater’s net zero emissions targets as well as creating sustainable employment outcomes and opportunities for local service providers and suppliers.”

i hold DOW