Downer had a very disappointing update yesterday, which saw the share price off 20% on the day (as much as 30% at the start).
The stock had been performing inline with the sector, which in turn tends to track the market (most of those businesses are either cyclical or GDP-type companies).
Then they announce accounting irregularities, and all bets are off. If you can’t rely on the financials, which you used to formulate your thesis, out it goes.
That’s 2 we’ve now had. Medibank, which got hacked, and Downer, where the CEO implied possible fraud, but at the very least a material oversight in process. They are essentially unforecastable events (I mean, yes, as a holder of valuable data you can argue that Medibank are a naturally higher candidate for hacking than say the owner of KFC (the chicken shop), and thus one is more likely than the other), and don’t lend themselves well to process.
In DOW’s case, perhaps the issue will be confined to just one contract, just one set of failed procedures, and have no wider implication, in which case the shares are incredibly cheap. But equally, when you see one cockroach, best to assume there are more.
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.