Major Downer

Roger Montgomery

Montgomery Investment Management

Downer Edi Limited (ASX: DOW) released its annual report for the period ending June 2015 last Thursday. It’s a sobering read for anyone still invested in businesses focused on engineering, infrastructure and contracting. Downer reported a FY15 Net Profit After Tax of $210.2 million, which although was in line with previous guidance of $210 million, it was supported by a lower tax rate and reduced interest expense – what we would consider to be a lower quality outcome. Management’s difficulty in predicting “uncontracted revenue or work that isn’t on the books”, means that despite a tough few years in resources and engineering, the next year could be an awful lot harder for the entire sector. To us, this is a clear warning sign that guesstimating earnings and attempting to value the business is now a dart throwing exercise. So beware of an analyst that comes to you with a solitary ‘valuation’ as a reason why it’s potentially cheap and should be bought on that basis. READ THE FULL ARTICLE HERE: (VIEW LINK)

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Roger Montgomery
Founder and Chairman
Montgomery Investment Management

Roger Montgomery founded Montgomery Investment Management in 2010. Roger has more than three decades of experience in investing, financial markets and analysis. Roger also authored the best-selling investment book,

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