Downer EDI Limited

DOW’s Revenues Rose 8.6% YoY: Downer EDI Limited (ASX: DOW) recently released results for the half-year ended December 2018, in which the company generated revenues of $6.6 billion, which is a rise of 8.6%. The company’s transport revenue witnessed a rise of 0.8% and stood at $2.1 billion despite a revenue loss following the divestment of freight rail business in the prior period. The utilities revenue saw an increase of 27.5% to $1.2 billion on the back of strong contributions from nbn^TM contracts in Australia and new renewable energy projects. The company’s total expenses witnessed a rise of 5.9% as compared to prior corresponding period (pcp), which includes $139.3 million related to Individually Significant Items (ISIs). If we exclude these ISIs, the total expenses rose 8.5%, which is in line with the increase in total revenue.

1HFY19 Income Statement (Source: Company Reports)

The company is also having decent footing with respect to its key margins as net margin for the company stood at 2.2% at the end of December 2018, which implies the rise of 0.8% on Y-o-Y basis, which highlights the company’s improved capability to convert its top line into bottom line. Also, during the same period, the company’s RoE stood at 4.5%, which implies a Y-o-Y rise of 1.8%.

What to Expect From DOW: Downer EDI Limited has increased target guidance to $352 million of consolidated net profit after tax and before amortisation of acquired intangible assets (NPATA) for FY 2019 before minority interests. The increase is after considering the fair value gain, which amounted to $17 million from acquiring the remaining 50% of Downer Mouchel JV in the late 1H FY 2019.

Stock Recommendation: On the monthly chart of DOW, Exponential Moving Average or EMA has been applied and default values were used for these purposes. After careful observation, it was noted that the company’s stock price has crossed the EMA and moved in the upward direction after crossover, which reflects the bullishness. Also, the company’s valuations are, more or less, decent as its P/B ratio stood at 1.6x as compared to the industry median (Construction & Engineering) of 1.3x. Based on foregoing, we maintain our “Hold” recommendation on the stock at the current market price of A$7.630 per share (up 1.194% on 26 March 2019).
 

NRW Holdings Limited

Release of Euroz Conference Presentation: NRW Holdings Limited (ASX: NWH) has recently released Euroz conference presentation, in which it discussed results overview. In the half-year ended December 2018, the company generated revenues amounting to $522.6 million, which implies the rise of 52.3%. However, its EBITDA stood at $74.3 million as compared to $40.3 million in prior comparative period. The Euroz conference presentation also contained information about the acquisition of RCR Mining Technologies, which involved consideration of $10 million. It was financed with the help of existing cash reserves completed mid-February 2019. The company’s net debt witnessed an improvement and stood at $12.8 million as compared to $34.4 million as at June 2018.


1HFY19 Key Metrics (Source: Company Reports)

The company is having a net margin of 5.7% at the end of December 2018, which implies a rise of 0.8% on the Y-o-Y basis. It reflects the company’s capability to convert its top line into bottom line.

What to Expect from NWH’s Civil: With respect to Civil business, the company stated that there are directly addressable opportunities (earthworks and concrete) of approximately $2.5 billion over the span of four years. However, with respect to Mining, the company stated that there are opportunities with Fitzroy resources. The company’s key focus is towards retaining, recruiting and training the workforce so that the strong market demand can be met.

Stock Recommendation: The company’s stock has delivered decent returns in the past few months, which might attract the attention of market participants. In the span of the previous six months, it posted the return of 17.17%, while in the timeframe of the previous three months, it delivered 47.30% return. The company’s stock seems to be, more or less, fairly valued as its P/CF ratio stood at 7.5x as compared to the industry median (Construction & Engineering) of 7.6x. Additionally, the company has increased its order book at December 2018 to $2.4 billion which includes around $557 million of work scheduled for delivery in the second half of the year. As a result, the company has reiterated its revenue guidance of around $1.1 bn for FY19 (before any contribution from RCR MT). Hence, considering the aforesaid facts and decent outlook ahead, we believe investors with exposure to the stock can “Hold” at the current market price of A$2.370 per share (up 2.155% on 26 March 2019), which is slightly towards high level.

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