Resumption of dividends buoys Downer
INVESTORS in Downer EDI have been buoyed by the engineering contractor's earnings outlook and its decision to resume paying dividends for the first time in two years.
Downer delivered a net profit of $94 million for the six months to December, a 10.8 per cent rise on last year. It said it expected a net profit of about $210 million for the full year, and underlying earnings of about $370 million after solid growth in mining and infrastructure.
The outlook was slightly above analysts' expectations, pushing shares in the company up to 80¢, or 16 per cent, higher to $5.66 in early trade on Thursday. The gains were pared back by the end of trade, with the shares closing 38¢, or 7.8 per cent, higher at $5.24 - still the highest closing price since May 2010.
"The business has performed very well over the past six months," the chief executive, Grant Fenn, said. "Each of our three divisions achieved substantial revenue growth."
Like fellow contractor Leighton, which reported on Wednesday, the surge in share price demonstrates a return of investor confidence in the company, which had been responsible for some unwelcome surprises.
The weak link in the group has historically been its rail division, with profits savaged by lengthy delays and cost blow-outs to its Waratah rail contract, a $3.6 billion deal to build 78 new trains for Sydney's metropolitan rail network. The project is still expected to incur a $430 million loss.
Downer had signalled it would move out of rail manufacturing to focus on the less capital intensive and more stable income stream of rail fleet maintenance.
In June last year, it announced a five-year agreement to outsource trains to Electro-Motive Diesel, in keeping with demand for cheaper rolling stock. Downer said it remained on track with its revised Waratah delivery timetable. Twenty-eight trains are now available for passenger service.
Downer incurred a $11.5 million provision related to a dispute over the construction of an electrical services tunnel in Singapore. The group declared an interim dividend of 10¢ a share, 70 per cent franked.
Morningstar analyst Ross MacMillan said Downer had performed particularly well in infrastructure and the resumption of dividend payments showed management was confident of the group's future.
He said confirmation the Waratah train project remained on track provided relief to shareholders.
Downer also announced it had been awarded a contract for the rollout of the national broadband network to homes and businesses in northern NSW worth $94 million over two years, with the option to extend the agreement.
It will be responsible for construction of the optical fibre network from the main fibre nodes to the boxes that let customers connect to the NBN.