20-Jan-2021:  4:10pm:  Downer exits Underground mining services

If that link doesn't work, try this one (from the ASX).

DOWNER EXITS UNDERGROUND MINING SERVICES

Downer EDI Limited (Downer) announced today that underground mining services at OZ Minerals’ Carrapateena mine will transition from Downer to Byrnecut Australia.

The Chief Executive Officer of Downer, Grant Fenn, said the transition was another step in Downer’s strategy to exit its capital-intensive Mining businesses and focus on its Urban Services strategy.

“Downer’s exit from Underground mining follows the sale of Open Cut Mining West, Downer Blasting Services, the Snowden consulting business and our share in the RTL Mining and Earthworks joint venture,” Mr Fenn said.  “We remain in active discussions with a number of interested parties in relation to Open Cut Mining East and the Otraco tyre management business.

“We will work closely with OZ Minerals and Byrnecut over the next seven weeks to ensure a smooth transition of services at Carrapateena. This includes the objective of providing roles for the majority of Downer’s existing workforce and the transfer of equipment from Downer to Byrnecut.”

--- ends ---

[I hold DOW shares.  The Streamlining continues.  DOW continues to exit their non-core businesses to focus more on what they do best.  I don't mind holding good mining services companies but I do not like them as part of a larger company whose main focus is elsewhere.  Some conglomerate structures do work, like WES (Wesfarmers) but usually they do not provide the best returns for shareholders.  The recent trend is to shrink to greatness, to dispose of non-core businesses and assets and provide prospective and current shareholders with a clear choice - to know what they are buying or holding, and what the company does.  In DOW's case, what they do best is transport infrastructure (road and rail) construction and maintenance.]

03-Dec-2020:  Downer Completes $1.4bn Sustainability Linked Loan Facility

This new debt facility is unique in that it is a new $1.4 billion syndicated sustainability linked loan facility. The new committed facility comprises three, four, five and six year tranches, and has been structured to enhance the debt maturity profile, reduce average borrowing costs and provide flexibility as the Group continues its program of divesting non-core businesses. The sustainability aspect of the new facility is underpinned by KPI metrics relating to Downer’s greenhouse gas emissions reductions and social sustainability (being cultural awareness and mental health and wellbeing training of Downer employees) that, if realised, will lead to a reduction in borrowing costs under the facility.

These sustainability KPIs are unique to Downer and reflect the Group’s continued commitment to its sustainability performance and investment in its people.

The Chief Financial Officer (CFO) of Downer, Michael Ferguson, said the refinancing was the final step in the consolidation of the Group’s debt platforms subsequent to achieving 100% ownership of Spotless and provided an ideal opportunity to align the Group’s financing and sustainability strategies.

“The refinancing of Spotless debt is expected to reduce total borrowing costs given Downer’s financial strength and investment grade credit rating,” Mr Ferguson said. “The sustainability features of the new facility are also a welcome validation of the Group’s ongoing commitment to a market leading sustainability strategy. As one of the largest employers in Australia and New Zealand, we are pleased to have the ultimate loan facility outcomes linked to the development of our workforce and our decarbonisation commitments.”

Mr Ferguson thanked the bank group for their support of the new facility which received strong backing from a range of domestic and international financiers, comprising existing and new lenders, and was significantly oversubscribed.

The facilities were jointly arranged by Australia and New Zealand Banking Group Limited, BNP Paribas, HSBC, Mizuho Bank Ltd and Sumitomo Mitsui Banking Corporation with BNP Paribas and HSBC acting as Joint Sustainability Co-ordinators.

Downer Group is rated BBB (Stable) by Fitch Ratings.

--- ends ---   [I hold DOW shares.]

02-Dec-2020:  Downer to divest 70% of Laundries business

The streamlining continues.  Check out the name of the PE mob that is buying that 70% of Downer's Laundries business - Adamantem Capital - reminds me of Adamantium, possibly the rarest metal on earth, because (a) it's fictional, and (b) nobody knows what metals went into making it because the metal's "inventor" fell asleep while making it out of a heap of different metals and then woke up to find it had formed itself.  For those who aren't geeks like me, Adamantium is the hardy metal that coats the skeletons of both Wolverine and his female clone from the movie "Logan", Laura (a.k.a. X-23), and it's what Wolverine's and Laura's "claws" are made of. 

But I digress...

Downer EDI Limited (Downer, ASX:DOW) announced today it had entered into an agreement to sell 70% of its Laundries business to an entity established by Australian private equity firm, Adamantem Capital (Adamantem).

Under the agreement, Downer will sell a 70% interest in Laundries and receive total proceeds of approximately $155 million on a cash and debt free basis. Following the transaction, Downer will cease to consolidate the Laundries business and will recognise its residual 30% ownership interest as an Equity Accounted Investment.

The Chief Executive Officer of Downer, Grant Fenn, said the transaction represented a significant step in Downer’s Urban Services strategy.

“The sale of 70% of Laundries achieves the objective of removing one of the most capital-intensive businesses from the Downer balance sheet,” Mr Fenn said. “Laundries continues to perform well as it recovers from the COVID-19 lockdowns in New Zealand and Victoria and by retaining a 30% interest we will participate in this ongoing recovery.

“We look forward to working closely with Adamantem and its management team providing market-leading services for our customers and employment opportunities for our people.”

Adamantem Capital Managing Director, Chris Adams, said: “Adamantem is proud to be investing in the leading commercial laundry business in Australia and New Zealand.

“We intend to invest to grow the business for the benefit of the 1,900 loyal employees and numerous longstanding customers. We look forward to partnering closely with Downer and the management team and to take advantage of the exciting opportunities that lie ahead.”

The sale is subject to customary conditions precedent being met, including regulatory and some customer approvals, and is expected to complete by the end of March 2021.

About Downer:   "Downer is the leading provider of integrated services in Australia and New Zealand and customers are at the heart of everything it does. It exists to create and sustain the modern environment and its promise is to work closely with its customers to help them succeed, using world-leading insights and solutions to design, build and sustain assets, infrastructure and facilities."  For more information visit www.downergroup.com

[I hold DOW as a play on increased spending on transport infrastructure - both new builds and maintenance of existing transport infrastructure - Downer specialise is roads and rail.  They had too many varied businesses within their structure, but they are in the process of selling or otherwise exiting their non-core businesess, particularly the very capital-intensive businesses like this one - their laundries business.  As I said at the top, "The streamlining continues."  They are also paying down their significant debt as they do this, so this is positive in two ways, they will become a better and more focused business and they will have less debt.]

18-Nov-2020:  Sale of Downer Blasting Services to Enaex S.A.

SALE OF DOWNER BLASTING SERVICES

Downer EDI Limited (Downer, ASX:DOW) announced today it had entered into an agreement to sell its blasting services business (Downer Blasting Services) to Enaex S.A.  Enaex S.A. is a subsidiary of the Chilean company Sigdo Koppers Group, which has operations in five continents, and is the largest producer of explosive-grade ammonium nitrate in Latin America.

The sale price represents an enterprise value of $62 million.

The Chief Executive Officer of Downer, Grant Fenn, said the sale of Downer Blasting Services was an important step in Downer’s Urban Services strategy.

“The sale of Downer Blasting Services follows the sale of the Snowden consulting business and also our share in the RTL Mining and Earthworks joint venture,” Mr Fenn said. “We are in active discussions with a number of interested parties in relation to the rest of the Mining portfolio.”

Completion of the transaction, which is subject to regulatory approvals and other customary conditions, is expected to occur before the end of March 2021.

--- ends ---

This is part of my investment thesis for Downer EDI (DOW).  They are going to sell non-core assets and concentrate far more on their core infrastructure construction and maintenance businesses, particularly transport infrastructure construction and maintenance.  They will also keep Spotless which will provide valuable recurring revenue derived from multi-year integrated facilities services contracts.  They needed to streamline the Group, and they're doing it.  They were far too diversified, and what they're going to look like one or two years from now is going to be far better, in my opinion, than what they have been over the past 5 to 10 years.  I consider DOW to be an excellent exposure to increased Government spending (both state and federal) on transport infrastructure here in Australia.

[I hold DOW shares.]

20-Oct-2020:  DOW: Link Alliance Awarded C5 and C7 Contracts for City Rail

I hold DOW shares, but I have reduced my exposure recently due to a couple of small headwinds that DOW face with the ACCC not being happy with a couple of their proposed divestments.  See:

https://www.businessnewsaus.com.au/articles/downer-s-sale-of-spotless-laundries-in-jeopardy-as-accc-raises-concerns.html

https://www.accc.gov.au/public-registers/mergers-registers/public-informal-merger-reviews/south-pacific-laundry-spotless-laundries

https://www.accc.gov.au/media-release/alscos-spotless-garments-acquisition-raises-preliminary-competition-concerns

I think there could be a headline or two coming that could spook the market somewhat in relation to Downer's divestment strategy, which could possibly provide a lower top-up opportunity to acquire further DOW shares.

I also note that companies that have taken the ACCC to court have tended to win those cases in recent times, and the ACCC do not have a very good track record in court.  A recent high profile example was when the ACCC tried to block the TPG-Vodafone merger, and David Teoh (of TPG Telecom) took the ACCC to court and won, and obviously TPG have now merged with Vodafone Australia. 

Despite a recent capital raising, Downer still have significant debt, more than I am usually comfortable with actually, however their various proposed divestments will both reduce debt and create a more streamlined business that is firmly focussed on Australian and New Zealand infrastructure, a great space to be a top-tier player in right now, which DOW are.

The main divestment that I want to see completed is the sale of Downer's Mining Services business.  At the beginning of this year, Perenti (PRN, formerly Ausdrill) were in discussions with DOW about acquiring that business - see here - but Downer announced in mid-March that they were suspending those discussions to enable them to fully concentrate on successfully navigating the Group through the pandemic.  It is also obvious that selling off a business like that in the middle of a global pandemic would be more like a fire sale than an orderly divestment of a non-core asset. 

I would imagine that those discussions would be either back on now or very close to resuming.  I would also expect that PRN would definitely NOT be the ONLY suitor interested in that Mining Services business, which should do much better under the management of a company that focusses predominantly on mining services - rather than a company like Downer whose main focus now is on infrastructure construction and maintenance as well as facilities management and maintenance. 

Some companies can be succesful conglomerates, such as SOL and WES, with very varied and diverse business interests, but others, such as DOW, need to pick their area of specialty and stick to it.  I say this about DOW because they have had a chequered history, with some multi-billion dollar cost blow-outs (i.e. the Waratah Trains project) and they have failed to demonstrate that they can succesfully manage such a diversified group of businesses profitably, hence their high debt levels, cost blow-outs on multiple projects and sometimes undisciplined acquisition history.

I think DOW are in the midst of a positive turnaround, and are trying to position their business in a very good space, being infrastructure construction and maintenance, particularly transport infrastructure construction and maintenance (road + rail mostly).  They have always played in that space, and their success has been mixed, however as a more streamlined and focussed company, I think there is significant upside for them to perform a lot better there than they have in the past.  

However, I still view them as a turnaround, and I tend not to put too much money into such companies until the evidence suggests that the turnaround is well on track.  As I said earlier in this post, they face a couple of possible headwinds, particularly with the ACCC perhaps attempting to block a couple of their Spotless Group divestments.  I doubt whether the ACCC will be interested in their impending mining services business divestment, because that's already a very competitive space, and one less player (DOW) in it won't make much difference at all.  However, I want to see all of these divestments done and dusted to give me some comfort that this turnaround is really on track.  Announcements such as today's (see link at the top) are positive, but they are just part of the story for me.  For now, I maintain a small position in DOW, with a view to increasing it when things look better still for this company.

12-Aug-2020:  Annual Report to shareholders

That contains:

1. Appendix 4E – results for announcement to the market for the year ended 30 June 2020;
2. 2020 Annual Report;
3. Market release dated 12 August 2020;
4. Investor Presentation; and
5. Appendix 4G – Key to Disclosures Corporate Governance Principles and Recommendations.

I hold DOW Shares.  They have made a loss for FY20, however what I'm more interested in is their future, which is neatly outlined in the "Downer Group Portfolio" graphic on page 3 of the annual report, which shows what they are going to be concentrating on going forwards, and what they are going to sell, and what they are going to wind down.  I remain of the opinion that they are very well positioned to capitalise on increased transport infrastructure spending in Australia, and that's the main reason why I hold them and why I did participate in their recent EO (which closes this coming Friday).

They also released a couple of other announcements today:  Takeover Booklet - Downer's off-market bid for Spotless   and   Takeover Booklet.

29-7-2020:  Downer awarded $324m in contract wins and extensions

[I hold DOW shares]

21-7-2020:  Investor Presentation - Creating a stronger Downer

and:  Creating a stronger Downer and equity raising

• Downer expects to report Underlying EBITA(*2) of $410 - $420 million and Underlying NPATA of $210 – $220 million for the financial year ended 30 June 2020
• Despite the impacts of COVID-19, cash performance improved materially in the second half of the financial year, with operating cash conversion at ~74% of Underlying EBITDA, taking the full year operating cash conversion to ~40%
• Downer expects to recognise $386 million of charges outside its underlying result in relation to goodwill impairment, restructuring and portfolio review costs, payroll remediation, legal settlements and historical contract claims adjustments
• Statutory FY20(*1) NPAT loss is expected to be in the range of $150 – $160 million
• Initiatives to reshape Downer as a focused Urban Services business with a stronger platform for long term, sustainable growth:
  • Achieving 100% ownership of Spotless
  • Exiting non-core businesses
  • Right-sizing cost base
• A$400 million equity raising to strengthen balance sheet, fund acquisition of the remaining shares in Spotless and provide flexibility for continued investment in Downer’s core business
• Downer will have significant balance sheet flexibility following the Entitlement Offer and Spotless Offer with pro forma liquidity of ~$2.1 billion and pro forma gearing ratio(*3) of 29.3% (within Downer’s long term target of 25% – 30%) as at 30 June 2020

Notes:

*1 All references to "FY20" in this announcement refer to the financial year ended 30 June 2020. References to "FY19" in this announcement refer to the financial year ended 30 June 2019. A number of figures, amounts, percentage, estimates, calculations of value and fractions in this Announcement are subject to the effect of rounding. Accordingly, the actual calculation of these figures may differ from the figures set out in this Announcement.

*2 Underlying profit and pro forma measures are non-IFRS financial information. These measures are reported as they provide useful information to users in measuring the financial performance of Downer. Underlying EBITA is reconciled to statutory NPAT in the FY20 Financial Performance section. Underlying profit and pro forma measures have not been subject to audit or review.

*3 Gearing ratio calculated as net debt / (net debt + shareholders’ equity). For the purposes of the gearing ratio calculations, shareholders’ equity has been adjusted to exclude the impact upon adoption of AASB16 of $66.0 million, consistent with Downer’s debt covenant reporting requirements. The pro forma gearing ratio includes adjustments for the impacts of the Entitlement Offer and Spotless Offer.

[I hold DOW shares]

7-7-2020:  Downer awarded South Australian road maintenance contracts

These new road maintenance contracts by the SA Government Department of Planning, Transport and Infrastructure (DPTI) are valued at ~$420 million over a maximum term of 13 years.  The contract also has provisions for additional minor capital works. The contracts begin on 2nd November 2020 with an initial seven-year term with two extension options of three years plus three years.

This is the sort of longer term recurring revenue in transport infrastructure maintenance that attracts me to DOW [I hold DOW shares].  Additionally, they are in pole position to pick up new transport infrastructure construction work, which is coming.  Boris J over in the UK has just announced his new "Build Build Build" plan (hopefully just a working title) to stimulate the UK economy, provide employment, and drag them out of their recession.  Donald J Trump wants to do the same, although he's getting some push-back as usual, because the default position there is that anything he comes up with (or says) is probably a bad idea, based on past experience.  Hard to argue with that really.  Although this one might well be an exception.

Australia is going to need economic stimulus that is better targeted and will provide long term benefits to the country, and transport infrastructure spending - on NEW projects - is going to be a key component of that.  DOW will benefit.

As an aside, I heard comedian Ross Noble on Channel 10's "The Project" last week say the following, which I thought was particularly hilarious:

"I don’t know if you’re across this, but currently Australia is going through what scientists call the ‘Spice Girls paradigm’.

"Everyone’s trying really hard, but Victoria’s ruining it for everyone."

26-May-2020:  Downer expands Fortescue relationship with $450m contract

Downer EDI Limited (Downer, ASX: DOW) announced today it was expanding its relationship with Fortescue Metals Group (Fortescue, ASX: FMG) through the provision of Early Mining and Maintenance Services at the Eliwana iron ore mine, located in the Pilbara region of Western Australia.

This is the second Eliwana project package to be executed by Downer, the first being the Bulk Earthworks contract which commenced in late 2019.

The new agreement is valued at approximately $450 million over five years.

Under the agreement, Downer will complete early works operations over two years as the mine site is established. After this initial two-year term, the operations will transition to Fortescue’s autonomous mining fleets. Downer will remain at the mine site and provide maintenance services for a further three years.

The Chief Executive Officer of Downer, Grant Fenn, said Downer was a leading provider of mining services in Australia.

“Downer has a long-standing relationship with Fortescue and we are very pleased to be expanding our services,” Mr Fenn said. “We are proud to be supporting the development of the Western Hub and the communities that will benefit from the mine.” 

About Downer: 

Downer is the leading provider of integrated services in Australia and New Zealand and customers are at the heart of everything it does. It exists to create and sustain the modern environment and its promise is to work closely with its customers to help them succeed, using world-leading insights and solutions to design, build and sustain assets, infrastructure and facilities. Downer employs approximately 56,000 people across more than 300 sites, primarily in Australia and New Zealand, but also in the Asia-Pacific region, South America and Southern Africa. It also owns 88% of Spotless Group Holdings Limited. For more information visit downergroup.com 

Disclosure:  I hold DOW shares.

22-May-2020:  Spotless Class Action settlement

Downer EDI Limited (Downer) announced today that Spotless Group Holdings Limited (Spotless) had accepted an offer to settle the class action commenced against Spotless in the Federal Court of Australia in May 2017.

The settlement is without admission of liability and is subject to Federal Court approval.

As a result of the settlement, if approved, the impact on Downer Group’s results for the 2020 financial year will be $35 million (pre-tax). 

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Disclosure:  I hold DOW shares.  

Spotless is 88% owned by Downer (DOW).  Spotless was an acquisition that wasn't a high point in Downer's management's track history, although not as bad as the Waratah Trains debacle.  The Waratah Trains project (for the Sydney rail network) costs blew out so much that DOW was hit with at least 3 different class actions over not keeping the market fully informed - and IMF funded 2 of those, and the third was funded by Slater & Gordon.  These were all settled in 2008, 2013 and 2016.  The 2008 one was actually over a different project - for Iluka (ILU). 

DOW were clearly in the wrong, hence the settlements in every case.  They repeatedly told the market that the Waratah project was "on track" (no pun intended, much), and it clearly wasn't.  They had stopped paying suppliers due to severe cashflow issues and were in various disputes with the NSW government over delays and trains that weren't up to spec. 

I normally wouldn't go near a company with such a disastrous track record, particularly when much of the management that are in place now were also in place then.  Contractors live and die by their quality and results of their risk management procedures.  Underquoting or not taking possible adverse contingencies into account (not allowing or insufficiently allowing for things that might go wrong) has turned many companies into ex-companies.  Hero to Zero.  However, Downer have survived, and I can't help but believe that they have learned some lessons from Waratah and Spotless.  I'm also not viewing them as a long-term, set-and-forget holding.  I believe they have been seriously oversold, and they look like a good short-to-medium-term-trade from here (from around $3 to $4.30/share) based on their exposure to increased fixed asset investment by state and federal governments in Australia, particularly transport infrastructure (roads, rail, bridges, overpasses, etc.) which is Downer's largest division and brings in more revenue for them than any other division. 

Other options in the sector don't interest me particularly, especially CIM (CIMIC Group) because of their ownership structure (offshore controlling shareholders) and because they have an even shadier past than DOW do (CIMIC used to be Leighton Holdings).  DOW is worth a short-term punt I think.  They have debt, but nothing due this calendar year, and only 6% of their debt needs to be paid back or rolled over in CY2021, so they are not in danger of breaching any lending covenants. 

They are not the best quality company out there by any stretch, but they look to be worth between 50% and 100% more than the ~$4 to ~$4.30 price they are trading at currently.  And they're not going broke any time soon.  So, the risk/reward equation looks reasonably compelling to me here.

And yes, I'm back home from hospital, with a new right hip.  Back on the trusty old desktop computer, hence the longer straws today.

Further Reading:

https://www.smh.com.au/business/class-action-hits-downer-20110210-1aopx.html

https://www.smh.com.au/business/downer-edi-knew-of-117m-waratah-blowout-a-year-before-telling-market-court-hears-20160202-gmjaj0.html

https://www.kwm.com/~/media/library/Files/Knowledge/Downloads/au/2014/07/01/kwm-the-review-class-actions-in-australia-201407.ashx?la=en

https://www.crikey.com.au/2017/04/12/mayne-who-really-wins-from-businesses-paitreo-capital-raisings/

https://www.afr.com/companies/spotless-takes-downer-edi-to-takeovers-panel-over-misleading-statements-20170331-gvb7ie

https://www.afr.com/work-and-careers/workplace/spotless-underpaid-workers-4m-20200221-p5437b

https://www.abc.net.au/news/2017-03-22/downer-edi-spotless-takeover/8375866

06-May-2020:  Macquarie Australia Conference presentation

That's a link to the presentation to be given at the Macquarie Australia Conference today by Downer’s Chief Executive Officer, Grant Fenn.

24-Apr-2020:  https://www.railexpress.com.au/contractors-shortlisted-for-morley-ellenbrook-line/

20-Apr-2020:  Downer completes $500 million financing

Looks like Downer has taken care of their debt for the next year and a bit.  Downer now has no debt maturing in the 2020 financial year or in the first half of the 2021 financial year. Debt maturing in the second half of the 2021 financial year is now less than $200 million, or just 6% of Downer’s total debt portfolio.  At 31 December 2019, Downer reported cash of $515 million and committed undrawn facilities of  $1.14 billion.  Downer Group is rated BBB (Stable) by Fitch Ratings. 

I have a small position in DOW.  They are one of Australia's largest transport infrastructure players, and will benefit from any increase in government spending on road and rail infrastructure, particularly in the eastern and southern states, although Downer does work all over Australia.  I think we will see increased government infrastructure spending soon, because we need the economic stimulus to get Australia moving again, and fixed asset investment is usually a very sensible way to pump up the economy and increase growth.  China has been at it for years, and it's what got us (Australia) through the GFC relatively unscathed - as an economy.  China's stimulus got us through that time, but we may need some of our own this time.  DOW should provide good exposure to that.  My position isn't large because I'm not entirely happy with their management, and I didn't like their debt levels.  This announcement is a positive on that front.

6 February 2019:  NSW GOVERNMENT ORDERS 17 MORE WARATAH TRAINS 
Downer EDI Limited (Downer) announced today that the NSW Government had ordered 17 more Waratah Series 2 trains as part of the Sydney Growth Trains contract.

Seventy eight Waratah Series 1 trains entered passenger service on the Sydney network between July 2011 and June 2014. In December 2016 the NSW Government ordered 24 Waratah Series 2 trains under its Sydney Growth Trains Project and 12 of these are now in passenger service.

The contract announced today for an additional 17 Waratah Series 2 trains is valued at approximately $900 million, including maintenance of the trains.

The new trains feature: 

• double deck carriages;
• air-conditioning with temperature control;
• high definition customer information screens;
• internal and external CCTV and customer help points; and
• priority seating, wheelchair spaces and hearing aid loops.

CEO of Downer, Grant Fenn, said he was delighted to build further on the proven success of the Waratah trains.

“The Waratahs are exceptionally reliable and very popular with commuters and train drivers,” Mr Fenn said.

“We look forward to working closely with Transport for NSW to provide more outstanding trains for the Sydney network.” 

To view this announcement - click here.

DOW are scheduled to release their 1HFY19 report tomorrow - Thursday 7th Feb.

23-Jan-2020:  A little bit of good news:  Downer awarded contract at Meandu mine in Queensland

...and quite a bit of bad news:  Trading update with revised guidance for FY20

I note that the "good" news relates to Downer's mining services division, and the rumours are that they are trying to sell off that division to enable them to concentrate more on their "core" services, such as infrastructure construction and maintenance, particularly transport infrastructure (roads, trains, etc.).  This announcement appears to continue a trend of cost blow-outs on various large projects all over Australia by various different companies.  Individual project management teams are often to blame, but also the companies' overall risk management systems need to be looked at.  The biggest issue is competitive pressure I think.  If you price everything in when you quote (cover off all of the risks), you will almost certainly be undercut by somebody who is a bit more hungry for that work and is therefore preapred to either accept or ignore some or all of those risks.  However, when it comes to Downer, they do have a history of downgrades over many years.  Remember the Waratah trains debacle?  I like Downer more than I like CIMIC group (the new Leighton Holdings), but they do look like a risky place to invest your hard-earned.  They don't seem to be learning from past mistakes.

12-Dec-2019:  Downer awarded Logan City Council contract - valued at approximately $520 million over 5 years

01-Aug-2018:  I meant to add the following to my last straw (in #Industry/Competitors):

Some of Downer's Competitors:

Cimic (CIM) and their various divisions are generally regarded as direct competitors of Downer, as are LendLease (LLC)..

RCR Tomlinson (RCR) in solar farms, railway signalling and electrical systems, minerals processing facility construction and operation, infrastructure construction, maintenance and operation, and various other areas.

All of the miriad of mining services companies compete directly against Downer's mining services division.

Hansen Yuncken, John Holland (which was purchased in 2015 by China Communications Construction Company International Holding Limited - CCCI), Watpac (ASX: WTC), Cimic (ASX: CIM, the old Leighton's, who also own Thiess), BGC Group, Fulton Hogan, CPB Contractors, Multiplex (owned by Brookfield, a Canadian private equity group), Laing O’Rourke Australia, Probuild, Nexus Infrastructure, ADCO Constructions, LendLease(ASX:LLC) and plenty of others - in non-residential construction.

Monadelphous (ASX: MND) in mining and engineering construction services, solar and wind farm construction, maintenance and operations, and especially in water infrastructure, oil & gas, and many other areas in which Downer operate.

There are plenty more.

One of Downer EDI's strongest areas is transport infrastructure construction, and they have a lot of competition there from both big, medium and small companies, including Lendlease (LLC), Probuild Civil, Abigroup, Fulton Hogan, Seymour Whyte, York Civil, Civil Mining and Construction (CMC), Ertech, Georgiou Group, VEC Civil, Guideline, John Holland, Burton Contractors, Golding (owned by NWH), CIM (Cimic), Boral (BLD) and a couple of overseas-based companies that operate here.

It's not easy to identify Downer's enduring competive advantages, if they have any.  However Downer look like a reasonable sector play to me.  Their issues with Spotless Group, and prior issues with the Waratah Trains contract in NSW are just two reasons why investors might still be a little hesitant to dip their toes back in this particular pond.  

While LLC (LendLease) have been moving NE at a good clip for 6 months now, CIM and DOW have just begun to be positively re-rated by the market in the past month.  There is likely more upside from here. 

And I prefer DOW to CIM.

01-Aug-2018:  Downer EDI are a $4.4 billion market-cap S&P/ASX-100 company that I think is going to report well this month, although I did think that about RCR Tomlinson (RCR) and I got that very wrong.  Downer do the following:

• Road, rail & bridge construction and other transport infrastructure;
• Renewables, including solar farms;
• Mining Services, with a number of mining contracts with miners of various sizes, including BHP Mitsubishi Alliance, Glencore, Idemitsu Australia Resources, Karara Mining, Milmerran Power Partners, Newmarket Gold, Newmont, Rio Tinto, Roy Hill Iron Ore, New Century Zinc, Stanwell Corporation and Yancoal Australia;
• Infrastructure construction, maintenance and operations, the latter two providing recurring revenue which is good to see with a contractor;
• Industrial plant construction, maintenance and operations;
• Facilities Management;
• Power and Gas;
• Communications;
• Minerals Processing;
• Non-residential Building;
• Light Rail, Buses and other Transport Solutions;
• Airports and Ports;
• Water Infrastructure;
• Oil and Gas; and
• Defence.

http://www.downergroup.com/about-us

They've had a history of problems, including with Spotless Group, a recent acquisition, and with the NSW Waratah Trains in prior years:

http://www.smh.com.au/business/no-more-bs-downers-internal-pledge-on-troubled-waratah-rail-project-20160203-gmk8pa.html

I think that 2018/2019 is likely to be the year they get things right for a change, on the back of a massive increase in transport infrastructure spending, especially on the east coast.

http://infrastructure.gov.au/infrastructure/publications/files/Trends_Infrastructure_and_Transport_to_2030.pdf

Disclosure:  I hold DOW shares.

I've posted a more up-to-date "Major Australian Transport Infrastructure Projects" chart here in a different straw (under the same hash tag - #Industry/competitors).  It was below (but they do move around a bit).  The other chart shows more projects that have been added since the one above was created and just how busy 2019 and 2020 are shaping up to be.  The bigger companies (like DOW, CIM, LLC) tend to dominate the larger contracts, but there will be plenty for everyone, and as the pendulum swings from too-many-companies-and-not-enough-work towards the other extreme (where there is a LOT more work, and companies can once again include some decent profit-margin in their quotes and tenders), we should see rates rise and profitability increase for companies like Downer.

Here's a more up-to-date Australian Transport Infrastructure Construction Project chart:

Source:  Macromonitor construction materials forecast, February 2018 estimates. Presented at May 2018 Boral Investor Day.

http://www.livewiremarkets.com/wires/key-beneficiaries-of-the-24bn-infrastructure-pipeline