Downer EDI (DOW) Stock Recommendation

Downer EDI (DOW) shares have rallied 7 percent on Friday following the announcement that the company is the preferred tenderer for the Sydney Rail PPP (Public Private Partnership) contract. The Reliance Rail syndicate is the preferred tenderer to finance, design, manufacture and maintain 626 new rail cars for CityRail in NSW. The Reliance rail syndicate is 49 percent owned by Downer. Based on the proposed timetable and management presentation stock analyst, Macquarie Research Equities (MRE) have upgraded their EPS forecasts by 14% in FY09 when the contract should be fully up and running. This is a large contract and will build Downer’s $7bn order book to $12bn. The Reliance Rail syndicate has contracted a joint venture of Downer and Hitachi to design, manufacture and commission the trains. This contract is a fixed price contract. Downer has laid off a substantial portion of the risk to its subcontractors on a similar fixed price basis. Downer has been contracted to maintain the trains over their 30 year life. The maintenance contract has escalation clauses to allow for future inflation. Financial close is expected in early December 2006. Downer will invest approximately $60m in equity for its 49% stake at financial close. Design work will start immediately after this with manufacture to start in FY08. he building phase of the contract will be worth approximately $2bn and the maintenance phase is $3bn over 30 years commencing in approximately 2010. This is a large contract and will build Downer’s $7bn order book to $12bn. Based on the proposed timetable and management presentation, MRE have upgraded their EPS forecasts by 14% in FY09 when the contract should be fully up and running.

Downer EDI Limited is listed on the Australian Stock Exchange (ASX) under stock code DOW. You can view their investor website here. DOW was listed on the ASX on 20 December, 1990. Downer EDI provides comprehensive engineering and infrastructure management services to the public and private rail, road, power, telecommunications, mining and resource sectors. Barry O'Callaghan is the chairman for Downer EDI. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. Check your charts and good luck with your share trading!