Downer EDI is continuing its slow recovery from last year’s big loss of credibility when it surprised investors with millions of dollars in losses and write-downs.
The company’s shares ended off 3c yesterday at $7.38 as investors reassessed Friday’s interim profit announcement and forecasts of a return to profitability this year and substantial revenue growth.
The construction and engineering group reported a 16 per cent rise in first-half profit but more importantly, said annual net profit would range from $157 million to $160 million.
That compares to the loss of $25 million in the 2006 year last year after those big losses, mostly on Iluka’s Murray basin mineral sands projects, and several other areas.
The company now expects group revenues to hit $5.3 billion in the year to June, up a handy 12 per cent from the $4.7 billion figure of 2006.
The company says that it had already made the majority of its revenue for this year and analysts point out that as a result there’s little downside risk to revenue this half, so the company looks well-placed to continue to rebuild its reputation.
It can’t afford another loss or surprise.
CEO, Stephen Gilles, who played a major part in stabilising investor confidence in Downer after the surprise write-down, said “The business is on track to achieve the majority of our financial targets for the financial year 2007”.
Downer reported net earnings of $80.6 million, up from $69.6 million for the corresponding period last year, with revenue of $2.6 billion, up from $2.3 billion.
Earnings before interest and tax (EBIT) jumped 25 per cent to $123.7 million.
Last year, Downer EDI was dogged by problems relating to the Douglas Sands Mineral Project undertaken for Iluka Resources with delays and cost rises the main reason for a $199 million provision in Downer’s annual results last year that produced the loss. Several executives departed and the company also wrote off or closed a couple of other areas.
News of the losses saw the Downer share price plunge 30 per cent, but the shares are now tracking back towards the levels they were before the bad news was revealed last August.
Downer and Iluka are now in a legal argument and the betting is that there will be some sort of settlement.
Its total order book is now worth $9.8 billion, compared to $7 billion in August 2006. That’s nowhere near the level of Leighton, its bigger competitor, but it does enable the company to sell the recovery line with a little more gusto.
