Downer EDI Ltd

DOW Details
Bagging many contracts: Downer EDI Ltd (ASX: DOW) got Engineering, Procurement and Construction (EPC) and a two-year Operations and Maintenance (O & M) contract from Fotowatio Renewable Ventures (FRV) for the Clare Solar Farm. This is a $190 million contract while the construction would take about twelve months starting this year. The group also got a contract from NBN Co (nbn™) to deliver, design and construct services related to new Fibre to the Curb (FttC) technology. This is over $200 million contract which would take thirty months till June 2019. With this contract, the group would deliver services to over 230,000 premises in the Sydney metropolitan region by June 2019. Even Transport for NSW gave Keolis Downer a 10-year contract, worth over $450 million, for operating a new, integrated public transport system for Newcastle city. DOW got over $1.7 billion contract from Sydney Growth Trains contract by Transport for NSW. This contract comprises order of 24 double-deck trains, with options for further 45 sets.
 
Decent fiscal year of 2016: DOW reported an overall revenue of $7.4 billion and an Earnings before interest and tax of $276.9 million. The group generated an operating cash flow of $447.8 million which is a cash conversion of 92.8% of EBITDA. The group maintained EBITDA conversion ratios in the range of 80% and 96% from the last six years. DOW has a liquidity of $1.1 billion.
 

FY16 performance (Source: Company Reports)
 
Stock performance: DOW has built a strong work in hand of $20.1 billion as of September 2016 end, which is an increase of $1.5 billion as compared to June 2016. As a result, DOW stock rallied over 105.9% in the last one year (as of January 20, 2017). On the other hand, the group forecasts a net profit after tax of $163 million in fiscal year of 2017 as compared to a Net profit after tax of $180.6 million of last year. Further, the 2017 year is said to be another challenging year. Moreover, CEO of Downer’s New Zealand business, Cos Bruyn is leaving the company after being with the group for about 13 years. Steve Killeen is said to assume the role of Acting CEO for the New Zealand’s business. Even though the group has a strong work in hand, 2017 could be a challenging year and concerns persist on whether the group would be able to maintain the contract wins. Investors can leverage the heavy rise in the stock as a profit booking opportunity. We give a “Sell” recommendation on the stock at the current price of - $ 6.14

 
DOW Daily Chart (Source: Thomson Reuters)

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