DOW share price in focus
Downer is the leading provider of integrated infrastructure services across Australia and New Zealand, specialising in the construction, maintenance, and operation of transit systems, utility services, and public infrastructure.
While the name might not instantly recognisable, their work is highly visible. For instance, Downer operates Melbourne’s Yarra Trams and manufactures the passenger trains you see in most states.
The company’s operations are divided into three primary segments: Transport, Utilities, and Facilities. The Transport division accounts for just over 50% of Downer’s revenue, with Utilities and Facilities contributing approximately 20% and 30% respectively.
The key metrics
For investors, DOW’s revenue, gross margin, and profit can provide valuable insights into the company’s performance.
DOW last reported an annual revenue of $10,980m with a compound annual growth rate (CAGR) over the last 3 years of -1.6% per year. While the absolute number is useful to know, the key point is the trend. We want to see a consistent, upward trajectory in revenue.
Gross margin measures profitability before taking into account overhead costs – it reflects the strength of the company’s core business operations. DOW’s latest reported gross margin stood at 11.5%.
Finally, the number we’re most interested in – profit. Last financial year Downer EDI Ltd reported a profit of $56m. Three years ago they made a profit of $176m, representing a CAGR of -31.7%.
Financial health of DOW shares
Profitability is important, but equally important is the capital health of the company. We want to know about the company’s leverage, their capacity to pay debts, and their ability to generate a return on assets. One measure we can look at is net debt. This is simply the total debt minus the company’s cash holdings.
Downer EDI Ltd’s net debt currently sits at $994m. Higher debt levels can increase sensitivity to interest rate changes and economic cycles.
Another figure we can look at is the debt/equity percentage. This tells us how much debt the company has relative to shareholder equity – this is also known as leverage. DOW has more equity than debt, with a debt/equity ratio of 81.1%.
Finally, we can look at the return on equity (ROE). The ROE tells us how efficiently the company is turning shareholder equity into profit – high numbers indicate the company is generating a lot of value for investors, while a low number raises concerns that capital isn’t necessarily being allocated efficiently. DOW generated an ROE of 3.6% in FY24.
What to make of DOW shares?
With revenue and profit trending downwards and low return on equity, DOW doesn’t look like the most inspiring pick, but it could still be worth digging deeper to understand their current situation and identify opportunities.
Please keep in mind this should only be the beginning of your research. It’s important to get a good grasp of the company’s financials and compare it to its peers. It’s also important to make sure the company is priced fairly. To learn more about share price valuation, you can sign up for one of our many free online investing courses.
