Daily ShareChat: Downer EDI

By Jenny Ruth

Wednesday 11th August 2010

Downer EDI former chief executive Geoff Knox's departure was forced by his inability to convince the market that the worst is over, says Peter Esho at Aegis Equities Research.

"We view the Knox departure as a very unfortunate turn of events," Esho says. "The Knox legacy is mixed - early success in turning the business around from prior losses in the mining division, only to be blemished in recent months by rail problems."

Strong management makes a big difference in the "very tough, cut-throat" contracting space in which Downer operates, Esho says.

"We don't doubt the ability of Grant Fenn (the finance director who has replaced Knox), but we do struggle to piece together the rationale behind the loss of Knox," he says.

Fenn's statement he will be working hard to meet the target of delivering the first train set under the Waratah project on target before the end of this calendar year "doesn't sound too reassuring and we interpret it as meaning 'we will keep the market informed if this timeframe fails and we start to pay penalties for late delivery,'" Esho says.

Fenn may instigate a capital raising "to clear the decks" and cope with any further rail writedowns, he says.

Recommendation: Hold.

Comments from our readers

No comments yet