DOW - Downer EDI

Interest on another thread - recent comments posted below

I think there will plenty of action around DOW - more bad news in the short term and then the big takeover .... could be interesting over the next few months

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(AA) DOW - Downer EDI Limited is looking attractive today, was trading above $9 less than 6 months ago, got some today for $4.25.

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(Jay) I was looking at them as well.
Looks like they are at or near the bottom, and with the big white candle on Friday, thought it could be a goer, but went further down today last time I looked, so trying head Mr P's advice and not buy a share going down! may wait and see what the Dow (US index) does overnight

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(AA) To early to tell for sure Jay, but if we were to be completely honest just because something has been moving up doesn't mean it will continue to move up after you buy it.

on this attached chart ive added the ADX indicator, it measures price expansion of a trend (either up or down) over a period of time, greater the reading greater the rate of price expansion, many say it is a measurement of trend strength but you might just call it the rate of price expansion in a given direction... when price expansion in a given direction with in a given period of time gets too high it becomes unsustainable at that pace, often these are market enviroments where the current trend becomes exhausted and a trend reversal or consolidation/base is formed. In this chart the current trend is clearly down and the ADX is reading high i.e above 50, A reading above 50 is generally a unsustainable rate of volatility for most companies and leads to changes in momentum and supply and demand shifts within share registers. Ideally some might suggest to wait for the ADX to flatten out or even turn down,or to wait for the stock to trend up, to do so however often means the price may then be trading further away from the support zone or the market bottom and can mean greater risk (risk = the distance between your buy and you stoploss plus slippage) as your stoploss/sell point would be further away by the time you enter with those extra layers of confirmation. every thing in trading is a trade off.

So in summary high ADX readings can often lead to enviroments of opportunity, ofcourse this technique alone doesnt make a stock a buy but is one factor which may help put probabilities in ones favor, since winning in the market is all about favorable probabilities when used along with other tools and such like techniques chances of a sucessful trade become greater.

Downer EDI Limited is a rather large company which pays a dividend, i personally would be happy to continue to accummilate more at technically probable turning points should the price fall further and build a larger position in layers, the yeild is already very decent, the yeild will increase as the price decreases leading to price support . Many will advise this is a bad idea however, each to there own i guess.

In the last 10 years the ADX for Downer EDI Limited has only exceeded 50 once whist in a downtrend so its a fairly rare occurrence, last time it lead to a strong rally afterwards, shown in chart 4 on 17/8/07 below post.

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(Jay) I was also looking at the reisitence/Support (as noted on your top chart) as well - at around 4.10- which it has seemed to bounce off.
I note the DOW and SP500 both down overnight so we shall see, although yesteray it did the opposite - go figure

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(AA) Doubled my holding of Dow at $4.12, a close above $4.13 would be nice.

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(AA) A good post written by Kacy on HC today:

Downer pays out over $100m worth of dividends each year. Geoff Knox has said they intend to pay it out again this year. If they had a cash flow problem they would not do that. As for Reliance Rail it is a ppp and the major shareholder is the NSW gov, and they are about to get voted out too.

This is not the first time a ppp has developed a cash problem. According to Knox, Downer is not at fault for the cost blowout and not liable for it. So its up to the NSW Gov and Downer to decide what to do about it. They wont make any decision until after the election and no need to either.

If there is an expectation that the private contractor should donate funds to a ppp whenever a cost blowout occurs it would create a dangerous precedent and give governments a blank cheque to spend spend spend at shareholders expense.

The only ones pushing for Downer to pay money into Reliance Rail are the Banks because they reckon its easier to get money out of shareholders than the government. They don't care where the money comes from. I hope Downer sticks to its guns on this.

I don't believe this will affect Downer's reputation or their bottom line at all. But it will make everyone think twice before entering ppp with any government. If Downer tender for a project and the project owner wants to pay more and get less from someone else then it is their loss.

Downer is good at what they do and the ones who matter know that. So whats the problem? Nothing! In the end the bottom line is all that matters. On those stats Downer must be the most undervalued company on the asx - and everyone knows it.

I'm not loaded up yet - still watching. The bottom is impossible to pinpoint. I will buy more this afternoon. I think the shorters are running out of bullets. (Now 0.14% shorted.) Its also bounced on a down day. A shadow is developing on the weekly chart and looking at previous bounces its due.

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(AA) Downer off to a good start this morning, shorts getting burned and having to cover, buyers stepping up , just hit $4.14, looks like the pendulum is turning.

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update: wow $4.20 now in just a few seconds

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On my watchlist now

Caught doing a bit of window dressing to back the books better

Cash-strapped Downer digs in
http://www.smh.com.au/business/cashs...0628-zf64.html

With what it means to market sentiment

One more Downer derailing
http://www.smh.com.au/business/one-m...0628-zf7e.html

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Originally Posted by absolut-advance

Quite amazing this price today!, are you getting tempted at all Winner69? It does look like the scare media has had its effect, or is it simply tax loss selling before the 30th?

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I think it's more a relection of the state of the market which has had some big "profit downgrade" scares in recent times - Sigma, ELD, NUF etc - and fears more.

A lucky escape personally. I almost bought in at the first bad news announcement but then remembered that the first profit downgrade is often not the last.

AA - on Winners watchlist and closely watching developments

But wheres there smole theres usally fire and things seem to be coming unstuck at DOW

Reading those announcements I thought better they keep their mouth shut but no they didn;t

Give more ammo for the papers to beat them up

Downer's confusing 'clarificatio


http://www.smh.com.au/business/downe...0629-zh6e.html

And to think that David McEwen's company (IRG) several weeks ago recommended DOW as a buy! (I didn't -not that I would be given to following his advice anyway.)

Talk of equity raisings .... at $3.00 ouch .... the need to rebuild credibility I fear will make those charts look sicker over the next few months AA

Getting to understand a bit more about DOW fundamentals and they don't make me feel all that comfortable .... but at some lower price than todays maybe worth it

To be honest, DOW looks sick and if they do strike green, it would be because they were sold down too fast, too soon.

Also, there is a possibility of LEI taking a stake in DOW under their anticipated equity raising or even LEI coming up with an offer for 100% of DOW. The risk reward is currently pretty much in equilibrium but if div were to be cut/eliminate to save on cashflow, then it's all downhill for DOW.

Good luck with your trading AA.

Definitely AA. My post was basically saying to stay out of DOW and "IF" they do go green, it would be because short seller buying back to lock in profits or a dead cat bounce.

The charts really looking a bit sad now AA eh

Have done a bit more study and finding it hard to look DOW on any fundamental basis at the moment .... I get the feeling that their business model could be severley tested over the next few years .... will still keep watching though as one day their might be an opportunity

I suspect that you're right, a-a, so it's on my "maybe" watchlist.

I'll be hoping that the TA experts, yourself included, will ring a bell at an opportune time!

Cheers

You can see why analysts are saying that a capital raising is inevitable just by looking at their recent cash flow statements

Dow is even more capital intensive than i thought .... like 2008 operating cash flow was $276m but $$260m of that went on new plant etc .... in 2009 the numbers were $356m and $270m repectively and the last six months $165m and $117m. All that before the dollars spebt on acquiring businesses

Shouldn't really be paying divies like they have .... heaps needed to reinvest in the business to keep it going .... and growing

There you are AA. Green and big green. A bounce or just short covering by short sellers.

All mining contractors had a bounce today and the mining tax announcement help today. A capital raising is a near certainty for DOW in the short term.

Been a really strong recovery since the 340's .... 350 to 450 not too bad

Didn't have a go at this one .... still too much uncertainty around DOW for me

Well done for ant who have made a killing

Bought a few today. Looks good, on some key T/A indicators. Also, the announcement re the BHP/Mitsubishi contracts seems pretty encouraging - $2billion worth - which they say will "substantially improve productivity and returns." Capex of $190m will be covered mainly by cash flow and finance leases. Leverage will still be "comfortably within the target range of 25% to 35%". Also, remember that they still have an Investment Grade rating with Fitch: BBB- with stable outlook.

So the money man takes over from the fired boss and the market cap down $100m

Does that say something about the appointment?

And now the money man's credibility on the line as DOW lurches from one disaster to another .... will these trains ever run is one question and I hear there are a couple of other projrcts not going to plan either

Worry to shareholders of talk of huge writedowns ..... credit ratings getting a bit pissed off and likely downgrades .... capital raising on the card .... hells bells and all that

Shareprice down to $3 tomorrow .... must be stretching punters patience a bit

Additional comment on the WKS010 thread as well

$250m extra provisioning, but did not see mention of capital raising and remains in compliance with debt covenants...

I would think the provisioning is worse than expected, but the market may be encouraged by cashflow/debt comments for now?

I don't think so, Liz.

DOW SP currently down almost 20%!

It's been a good stock to trade for me in the past but I'll wait for some strength this time.

Hi Guys
At time of posting over 20m shares traded. Heavily down but stabilising. Plenty getting out but don't forget other side of trade seeing this as oppportunity. Also prior to today Franklin Resources continue to increase stake at over 8%

Methinks not a good time to get tempted to buy in .... wait until the inevitable capital raising .... hopefully heavily discounted eh

Opportunity awaits

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Originally Posted by winner69

Methinks not a good time to get tempted to buy in .... wait until the inevitable capital raising .... hopefully heavily discounted eh

Opportunity awaits

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Methinks you should take a long cold shower.Surely a man of your worldly experience can find better opportunities elsewhere.

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Originally Posted by percy

Methinks you should take a long cold shower.Surely a man of your worldly experience can find better opportunities elsewhere.

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just looking to make a few quick bucks here .... DOW is not a sort of company I would ever 'invest' in based on fundamentals.

Currently just under 400 ..... might have a rraising at 350 or seeing things are getting desperate maybe even less ..... and then like NPX percy everything is all fine and dnady again and the shares go to 700 plus .... that's the story ... maybe that is what it is .... but maybe, jsut maybe, an impending sure fire opportunity

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Originally Posted by winner69

just looking to make a few quick bucks here .... DOW is not a sort of company I would ever 'invest' in based on fundamentals.

Currently just under 400 ..... might have a rraising at 350 or seeing things are getting desperate maybe even less ..... and then like NPX percy everything is all fine and dnady again and the shares go to 700 plus .... that's the story ... maybe that is what it is .... but maybe, jsut maybe, an impending sure fire opportunity

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My thoughts are with you.!! I just hate giving companies more money to lose.[done it too often],much perfer companies,who make a profit and pay me a divie.

No no percy ... I am not going to give THEM money .... the money will be going to some poor sod who had enough and wants some cash back

Like your point about giving money to companies to lose ... sometimes it is just too easy for comapnies to do that .... maybe not lose but invest wisely

Worst culprits seem to be those who issue Capital Notes ... almost treated as free money and generally 'invested with poor returns - have the cash must do something

Lot of NZ companies fallen into that trap - SKC and HBY good examples

Hey Winner,

What makes you think a cap raising is not far away?

cheers
Moi.

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Originally Posted by winner69 12-feb-2011

just looking to make a few quick bucks here .... DOW is not a sort of company I would ever 'invest' in based on fundamentals.

Currently just under 400 ..... might have a rraising at 350 or seeing things are getting desperate maybe even less ..... and then like NPX percy everything is all fine and dnady again and the shares go to 700 plus .... that's the story ... maybe that is what it is .... but maybe, jsut maybe, an impending sure fire opportunity

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Not sure if you ever made some money on this one, Winner69, but it has been round the block a couple of times since then between the $2.90-$4.10 marks.... on the slide again at present, despite making progress on restructuring and continuing to announce contract wins. May be worth looking at for a contrarian trade again, as looks to me to be in value territory here at $3.08 (my valuation $3.99).

Cyclical market and unknown tail-end costs to Reliance Rail might carry some risks, but perhaps they have cleaned house enough for a visit?

Price gone nowhere since my last post in June, with last sale at $3.12. However, result today was a good turnaround, though no dividend yet. Forecast for $210m NPAT in coming year puts it on a forecast PE of 6.1 - so pretty good value and will probably tick higher over the next six to nine months. Further than that will depend on some confidence returning to the economy and particularly in regard to infrastructure spend - although they do get some benefit from work in Christchurch and Ultra Fast Broadband work.

Not one I'm keen to add to a long term portfolio at present, but potential for a re-rate could make it interesting to traders needing liquidity.

Yep, interesting that UGL is struggling and DOW talking up their future. First trade in DOW a success. Bought soo little compared to my standard purchase. Interestingly, just read an article that 1/3 of DOW's business comes from one client.

DOW has had a stellar run.Check out todays chart its quite a stunner; off the cliff down re 25% after announcing a buy offer for dog Spotless. What a reaction!

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Originally Posted by Joshuatree

DOW has had a stellar run.Check out todays chart its quite a stunner; off the cliff down re 25% after announcing a buy offer for dog Spotless. What a reaction!

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...and a rights offer essentially being rejected leaving the underwriter with a huge shortfall

Thanks for completing the sorry saga with that extra detail w69.Tough luck for holders sailing merrily upwards; then whammo; can happen at any time with pretty well any stock. I do like my PIE fund more and more..

27.7 million DOW shares still worth more than 151 million A$ changed hands today - after a suddenly turned hapless board destroyed more than 20% of the shareholder value with one stupid announcement.

Hard to understand how anybody would want to buy into a downtrending lemon like Spotless and even offer a more than 70% premium on the current market price of SPO?

Question is - is the DOW board really that stupid ... or do they see an opportunity nobody else does?

Sure - it would increase their marketshare in the services sector - but what a premium is this additional marketshare really worth?

Anybody sees an opportunity here for Downer .. apart from the fact that markets typically overreact?

Spotless hasn't always been a lemon but there must be a big question over whether DOW has the management to handle the problems that they will face there. I'll be keeping clear meanwhile.

Funds manager Allan Gray say Spotless bid value destructive

http://www.smh.com.au/business/downe...23-gv4v5c.html

Allan Gray Australia buys more of Arrium (ARI.AU) after stock falls by ... Allan Gray are not the shining star to heed advice from these days imo. Good luck to anyone still holding.DOW think there is value there ; i have no idea except the mkts reaction has been savage but that could be another professional shorter like Glaucus (see TFC thread)at work?

Have you been buying BP ;if so can you share on here your reasons?Thanks

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Originally Posted by Joshuatree

Have you been buying BP ;if so can you share on here your reasons?Thanks

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I am holding some (and am still over water ...), but no - I didn't buy more. While I do see some opportunities in this deal, I think that they pay too much. As well - I need to think hard, whether I really want to be invested in Spotless. Too much bad press and too many negative personal experiences. I can not think of one positive experience with Spotless service, but I could fill the next three pages with negative ones. On the other hand - the company is obviously larger than their Christchurch branch.

I probably wait until this bouncing ends and will than review my reasons for holding DOW. In my view unlikely that they recover anytime soon the heights they commanded prior to this announcement.

Thanks BP. I lost some money on Spotless waaaay back; can't remember details or history , but dirty dog laundry smell fits.I know nothing about DOW management and don't hold but surely they've done their DD and have a cunning plan to make it accretive, but the mkt and my favourite retired fund manager think like this:scared::t_down:

Allan buying more!!

http://nzx-prod-s7fsd7f98s.s3-websit...742/400916.pdf

A newbie question. Can someone explain why Downer is listed on the NZX but can only be traded on the ASX. What is the point of it being on the NZX? I have sent this question to the NZX and directly to DOW but they dont consider it worthwhile replying. Im hoping the experienced on ST can explain this, if only to satisfy my curiosity. I dont know of any other share on the NZX where this situation occurs.
Thanks in advance