In today’s daily we have covered stock research on Downer EDI (BUY).









 
TheS&P 500 was down by 5.27points or0.25%on Friday to 2067.56 points. U.S. stocks ended a holiday-shortened session mostly flat on Friday as a massive decline in the energy sector offset strength in consumer names. For the week, the Dow rose 0.1 percent, the S&P rose 0.2 percent and the Nasdaq rose 1.7 percent. It was the sixth straight weekly gain for all three. For the month of November, the Dow was up 2.5 percent, the S&P was up 2.5 percent and the Nasdaq up 3.5 percent.

Consumer sentiment climbed to a seven-year high in November as Americans’ views of their financial well-being improved, according to the Bloomberg Consumer Comfort Index. Earlier in the month a report showed the U.S. unemployment rate fell to 5.8 percent in October, the lowest since July 2008. Europe’s equity benchmark gained 3.1 percent this month, as Mario Draghi said the European Central Bank may broaden its asset-buying program to include the purchase of government bonds, while central banks in Japan and China stepped up measures to support their economies. The MSCI Asia Pacific Index slipped 0.8 percent for November.



S&P 500 3 Month Chart (Source – Thomson Reuters)
S&P ASX 200 was down by 87.9points or 1.63%on Friday and closed at 5313.0 points. The Commonwealth Bank ended the week 0.8 per cent stronger at $80.72, ANZ was 0.3 per cent higher to $31.92, Westpac 0.9 per cent firmer to $32.55, andNational Australia Bank up 1 per cent to $32.60. Challenger shares plunged 8.6 per cent on Friday after it lowered its earnings guide for its life insurance business.
Woolworths ended 1.5 per cent lower for the week at $31.12 despite Thursday’s annual meeting reassuring nervous investors. Wesfarmers did worse, down 2.1 per cent to $41.42 across the week. Qantas shares benefited from the oil price drop, rising 6.7 per cent to $1.92. Santos shares fell 15.4 per cent to $10.10 over the week. Origin dropped 7.6 per cent to $12.25. The Australian dollar was trading at US85.09¢ at about 9am AEDT on Saturday, compared with US84.99¢ at its local close on Friday.  SPI futures closed 44 points lower at 5294.

 

ASX 200 Daily Chart (Source – Thomson Reuters)
 
Top Performers on the ASX 200 were :-


 
Stock of the Day - DOWNER EDI (BUY)
Downer EDI announced at its annual general meeting or AGM slightly higher earnings guidance for fiscal 2015 despite the continuing mining downturn but incorporating recent acquisition, Tenix. In August Downer guided to fiscal 2015 net profit after tax or NPAT of AUD 205 million down 5% on fiscal 2014 despite lower operating costs. After completing the Tenix acquisition on 31st October Downer has now increased fiscal 2015 NPAT guidance by 2.4% to AUD 210 million.


Net Debt & Gearing (Source - Company Reports)
Tenix is a major provider of long term operations and maintenance services to power, gas, water industrial and resource infrastructure sectors in Australia and New Zealand. At the AGFM chief executive officer Grant Fenn ominously warned that the “mining industry remains under intense pressure due to subdued commodity prices particularly coal and iron ore”. Historically almost 30% of Downer’s operating revenue has been derived directly from providing contracted open cut mining services in the domestic market. We do not expect improved operating revenue from Downer’s mining operations until fiscal 2018.


Operating Cash Flow (Source - Company Reports)
Evidence of the successful integration and expansion of the Tenix business will be a catalyst to an improved share price. Downer has established a solid competitive position in Australia and New Zealand market, benefitting from scale and customer relationships. Downer continues to build solid momentum towards delivery of significantly better operational performance but the mining downturn and subdued economic conditions continue to negatively impact the company.


DOW Daily Chart (Source - Thomson Reuters)
During the past two years, Downer has been contemplating providing contracted operations and maintenance services to the domestic power, gas and water sectors. Therefore the acquisition of Tenix is a part of a well-considered growth strategy which will provide Downer with the foundation for a new core maintenance business with substantial exposure to utilities and non-mining infrastructure sectors. We believe a key strength of the Tenix business is its robust long term relationships with major electricity network in Victoria and South Australia, with 10 to 14 years contracts already in place. We put a BUY on the stock at the current price of $4.30.





 
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