Downer EDI Limited

To record a goodwill impairment charge in the first half: Downer EDI Limited (ASX: DOW) stock fell 4.14% on February 05, 2018 after the company announced to record a goodwill impairment charge of A$77 million for its mining business in the half year to December 31^st, 2017. This is due to the mining’s historic high levels of returns being reduced significantly because of the non-renewal of two material contracts and delays in securing alternative contracts. However, this will not have any impact on cash flow or the company’s existing operations. Moreover, the FY 18 guidance remains unchanged and the company expects the underlying net profit after tax and before amortisation of acquired intangible assets (NPATA) to be $295 million before minority interests. The projection includes NPATA of $202 million for Downer and NPATA of $93 million for Spotless. Meanwhile, DOW stock has fallen 2.55% in three months as on February 02, 2018, however, the same still looks “Expensive” at the current price of $6.62
 

Wesfarmers Ltd

Significant items expected in 2018 half-year results: Wesfarmers Ltd (ASX: WES) stock fell 4.75% on February 05, 2018 after the company announced to record a number of significant items in the group’s 2018 half-year (HY2018) financial results. This is after a review of the performance and strategic plans for Bunnings United Kingdom and Ireland (BUKI); and is subject to completion of Ernst & Young’s review of the financial statements. The significant items that will be included are the non-cash impairment of £454 million ($795 million) before tax, with £444 million ($777 million) to be posted against goodwill and £10 million ($18 million) against the remaining book value of the Homebase brand name. The stock write-downs of £37 million ($66 million), relating to excess, unsuitable and display stock, and store closure provisions of £40 million ($70 million) will be recorded and a write-down of BUKI deferred tax assets of £53 million ($92 million), will be reflected in the group’s income tax expense. Further, BUKI is expected to report an underlying loss before interest and tax of £97 million ($165 million) for HY 18, which reflects the poor trading performance of Homebase. The acquisition of Homebase has been below the expectation. WES has also assessed the carrying value of its investment in Target, which will result in a non-cash impairment of $306 million before tax, to be applied against the carrying value of its brand name ($238 million), remaining goodwill of $47 million and property and equipment ($21 million). The impairment of Target shows the difficult trading conditions in an increasingly competitive market. Based on the challenging trading conditions, we give an “Expensive” recommendation on the stock at the current price of $42.16

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