DOW share price in focus
Downer is the leading provider of integrated infrastructure services in Australia and New Zealand. They’re responsible for building, maintaining, and operating transit systems, utilities services, and public infrastructure.
While the name might not be familiar, you’ve definitely come across their work. Downer operate services like the Yarra Trams in Melbourne, and build the passenger trains you see in most states.
Downer separates its business into three main segments of Transport, Utilities, and Facilities. Transport delivers a little over 50% of their revenue, and Utilities and Facilities around 20% and 30% respectively.
Since we consider Downer EDI Ltd to be a blue chip stock, or a mature business, we like to look at things like return on invested capital (ROIC) and revenue growth as signs of sustainability. In FY24, Downer EDI Ltd had an ROIC of 6.90% and revenue has compounded at -1.6% in recent years. If a mature business struggles to consistently hit 10% ROIC it could be a sign the business may not be investing its capital effectively. This is just a rule of thumb we follow.
REA shares
Founded in 1995, REA Group is a Melbourne-based real estate advertising company that is majority-owned by News Corp. In Australia, it’s best known for its Realestate.com.au platform.
REA Group operates on a global scale and now operates property websites in around 10 countries used by some 20,000 agents. In a typical month, the core Australian website gets over 55 million visits. While the business has diversified globally, Australian operations still account for the lion’s share of revenue. Within Australia, REA makes money by listing properties for sale or rent (i.e. the agent uses REA’s website to show properties, which the property owner is on the hook to pay). It also makes money from financial services (e.g. mortgage broking), but this is a much smaller part of the business.
The competitive advantge that REA has is the same as any other established platform: network effects and economies of scale. In other words, Domain (the #2 player) is meaningfully behind REA in users and views, which means REA can continue to control pricing and market dynamics. REA also benefits from owning assets across all parts of real estate, including listing, advertising, mortgage broking, and house sharing.
DOW share price valuation
One way to have a ‘fast read’ of where the DOW share price is, is to study something like dividend yield through time. Remember, the dividend yield is effectively the ‘cash flow’ to a share holder, but it can fluctuate year-to-year or between payments. Currently, Downer EDI Ltd shares have a dividend yield of around 3.09%, compared to its 5-year average of 3.74%. Put simply, DOW shares are trading below their historical average dividend yield. Be careful how you interpret this information though – it could mean that dividends have fallen, or that the share price is increasing. In the case of DOW, last year’s dividend was less than the 3-year average, so the dividend has been falling.
Since REA is more of a growth company than an established blue chip, a price-sales ratio might be a more appropriate assessment.The REA share price currently trades at a price-sales ratio of 15.33x, which compares to its 5-year long-term average of 17.41x. So, REA shares are trading below their historical average. However, a simple multiple like this should only be the start of your research. The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Just remember there are many different ways to value a share, like Rea Group Ltd.
