Major Downer

Downer Edi Limited (ASX: DOW) released its annual report for the period ending June 2015 last Thursday. It’s a sobering read for anyone still invested in businesses focused on engineering, infrastructure and contracting. Downer reported a FY15 Net Profit After Tax of $210.2 million, which although was in line with previous guidance of $210 million, it was supported by a lower tax rate and reduced interest expense – what we would consider to be a lower quality outcome. Management’s difficulty in predicting “uncontracted revenue or work that isn’t on the books”, means that despite a tough few years in resources and engineering, the next year could be an awful lot harder for the entire sector. To us, this is a clear warning sign that guesstimating earnings and attempting to value the business is now a dart throwing exercise. So beware of an analyst that comes to you with a solitary ‘valuation’ as a reason why it’s potentially cheap and should be bought on that basis. READ THE FULL ARTICLE HERE: (VIEW LINK)