DOW
This a small thread, largely me thinking out aloud as I look over the portfolio searching for downgrade risk.
You can do a lot worse than old Downer, given current valuations. Decent yield…
, with the balance sheet in good nick, running at around 1.5x ND/EBITDA.
Cashflows are quite okay since divesting all the capex-heavy divisions (mining, for example).
Obvious problems are weather and whatever lingering COVID effects there may be on absenteeism. You can see the very sizeable COVID-related drop in earnings from 2020 on.
Using 2019 as the baseline to extrapolate “normalised earnings” from seems reasonable, which is pretty much what it looks like consensus (street expectations) have done.
At the least, that latter effect of COVID should be fading, given case rates, and border reopening should be helping with accessing labour, leading to margin improvement (right person, right place, right job type stuff).
Over the long run, there are oodles of work to be done through DOW’s power division, which should have loads of electrification work to grind through over the coming decades.
Mostly, it’s the stuff described below—reliable, long-dated contracts with cost escalation baked by solid relationships over many years. You might need to expand the image to read the text.
Given downgrades (today) like BBN, in which they cite margin falls due to cost pressures/inflation, it’s a handy offset.
Now the whole point of the thread is me thinking out loud while looking at the portfolio in terms of who is cum downgrade risk, given that I think there will be a lot of disappointment over AGM season.
A case of “who’s next?”
Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.
This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.
Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.