DOW

The three halves worth of skewering to previous management’s legacy, at the company.

Went from (in our view) a tenure of improvement, through exiting capital intensive low returning contract mining, + right-sizing of the business, to one of hollow contracts with inadequate protections.

That picture above is the utilities business, where Downer is meant to have a competitive advantage.

We exited our position (where we thought DOW was a steady GDP-like grower with good leverage to the “electrify everything” climate change phenomena) after the accounting irregularities were identified.

Whilst it seems the irregularities are dealt with, and no further issues found, they’ve nonetheless disappointed the market again, today, pointing to a tough FY24, as the “new news”.

In particular, it is the “ongoing performance risk” highlighted below, across those problem contracts in the utilities business.

We said at the time of exit that Downer was “dead capital”, and really only for a very high-risk high reward strategy for those willing to hold on.

Today reaffirms our decision to look elsewhere. Its time may well come again, but not for now, in our flagship portfolios. We would need to see a) ongoing decent cashflow conversion b) progress towards the group 4.5% margin target c) a “clean” half with no further gremlins d) no further flagged deterioration in underlying conditions (e.g. NZ slowing down, or government work being deferred).

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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.

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