Downer EDI on an upper

Infrastructure and mining services group Downer EDI delivers the goods but faces a challenging 2014.

Mining services companies aren’t exactly flavour of the month right now.

But Downer EDI (DOW) continues to buck the trend, delivering a slightly better than expected full-year earnings result that justifies its exalted position among most analysts as a buy.

Statutory earnings jumped 81% to $203.98 million while underlying profit rose 10.4% to $215.44 million on improved revenue and reduced debt.

After the problems and write-downs of recent years, particularly in its rail division, it has also rewarded shareholders with a lift in final dividend to 11c, taking the full year payout to 21c – a vast improvement on 2012 when payments were withheld.

The dividend, however, was a little lower than expected as the company conserves its capital in the face of an uncertain future.

With fingers in infrastructure, mining and rail, each of Downer EDI’s divisions are facing tough trading conditions, with the company this morning pointing to flat growth.

In a brief note to the accounts, Downer expects $215 million in earnings this year.  If realised, that would be a stunning performance given governments at federal and state levels all are targeting reduced expenditure just as the mining sector is acclimatising to the downturn in commodity markets.

Not surprisingly, Downer will focus on securing revenue and cutting costs although it admits a higher degree of uncertainty than the past year.

Its mining division has suffered from several high profile cutbacks, with scale backs by Fortescue (FMG) at its Christmas Creek iron ore project along with a decision by BHP (BHP) to takes some of its work at Goonyella in house (see Roger Montgomery's Inside the mining services disaster).

In the wake of its near catastrophic train wreck of a contract with the NSW Government of recent years, its Waratah train project has turned the corner.

Investors seemed to like the result. The stock jumped more than 4% at the open.

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