Downer EDI (DOW) shares jumped 20% to near seven year highs yesterday after the company surprised the market by raising its full year profit guidance.
The shares peaked at $7.46, and then eased to close the day stil up a solid 13.1% at $7.07.
That’s the highest since early 2010.
Diversifying away from mining helped the contractor deliver a 8.5% lift in interim net profit to $78.2 million. A year ago the company reported a 24% slide in earnings to just over $72 million as the mining slowdown hit hard. The company seems to be well past those problems and market expectations and the higher than forecast interim profit was well above some analysts’ forecasts which were centred just under $70 million for the half.
CEO Grant Fenn said in yesterday’s release the company was enjoying a “very strong operational and financial performance.”
Downer boosted its full year net profits guidance by 7% to $175 million from $163 million after winning more than $20 billion in new contracts in the first half of 2017.
That reversed a cut in the forecast last year. In August, Downer cut its annual profit guidance to $163 million from roughly $170 million after failing to win a contract to build a new intercity train fleet in NSW.
Downer said it recorded a write-off of $10 million in pretax bid costs.
These included a $2 billion contract to deliver Victoria’s high-capacity Metro trains project and a $1 billion suburban trains contract for Sydney’s rail network.
“Work-in-hand has increased over 13 per cent during the half to $21.1 billion with major contracts wins in both Australia and New Zealand including High Capacity Metro Trains in Victoria and Sydney Growth Trains in New South Wales,” Mr Fenn said i yesterday’s statement.
He said Downer is continuing to reposition its business to service increased investment and outsourcing in areas such as roads, rail, public transport and defence.
Earnings rose in Downer’s transport services, technology and communications, rail and engineering, construction and maintenance businesses compared with a year earlier.
But earnings fell in its mining and utilities services divisions as contracts were completed, as the company has been saying now for more than two years.
But directors remain wary about the outlook, despite the higher interim profit and raised full year guidance – they left interim dividend unchanged at 12 cents a share.
