Dow share price in focus
Downer is a leading provider of integrated infrastructure services in Australia and New Zealand. They are responsible for building, maintaining, and operating transit systems, utility services, and public infrastructure.
While the name may not sound familiar, you’ve definitely got their work. Downers operate services such as Yarra Trams in Melbourne, and build the passenger trains you see in most states.
Downer separates its business into three main segments: Transportation, Utilities and Facilities. Transport accounts for a little over 50% of their income, and utilities and amenities around 20% and 30% respectively.
Key measurements
If you’ve ever tried to read a company’s income statement over an annual report, you know how complicated it can be. While there are many ways to break down your statement, there are three main ones Revenue, Gross Marginand profit.
Income is important for obvious reasons. Everything else (profits, margins, return on equity, etc.) is downstream of the company’s ability to generate sales and revenue. What we are looking for is not so much an absolute number, but trend. The Dow last reported annual revenue of 10,980m, with a Compound Annual Growth Rate (CAGR) -1.6% per annum in the last 3 years.
The next thing we want to consider is gross margin. Gross margin tells us how profitable the underlying product/service is – before you take into account all overhead costs, how much money does the company make selling $100 worth of goods and services? Dow’s most recently reported gross margin was 11.5%.
Finally, we get the profit, the actual headline number. Last financial year Downer Eddy Limited reported a profit of ` 56m. This compares to 3 years ago when they made a profit of 6 176M representing a CAGR of -31.7%.
The financial health of Dow shares
Next, we can consider this Capital health What we are trying to work out of the company is whether the company is generating a reasonable return on their equity (total shareholder value) and whether they have a good buffer of safety. There is an important step to consider Net debt. It is simply the company’s cash holdings minus total debt.
In Dow’s case, current net debt sits at 4,994M. A high number here means that a company has a lot of debt, which potentially means higher interest payments, higher volatility, and higher sensitivity to interest rates. A negative value, on the other hand, indicates that the company has more cash than debt, which can be viewed as good (a large safety buffer) or bad (inefficient capital allocation).
A metric that may be more valuable to us is Debt/Equity Percentage. It tells us how much the company owes to shareholders. In other words, how much profit is the company making? Downer Eddy Limited’s debt/equity ratio is 81.1%, which means they have more equity than debt.
Finally, we can see Return on Equity (ROE). ROE tells us how much profit a company is earning as a percentage of its total equity – a high number indicates that the company is allocating capital efficiently and generating value, while a low number indicates that the company’s growth may be starting to slow. Dow produced an ROE of 3.6% in FY24.
What to make of Dow shares?
https://www.youtube.com/watch?v=zz1n_x7rpbs
One way to get a ‘quick read’ of where the Dow share price is may be to study something like dividend yield over time. Remember, the dividend yield is effectively ‘cash flow’ to the shareholder, but it can fluctuate from year to year or between payments. Currently, shares of Downer EDI Limited have a yield of around 2.17% compared to its 5-year average of 3.74%. Simply put, Dow shares are trading below their historical average dividend yield. Be careful how you interpret this information though – it could mean profits are down, or the share price is rising, or both. In the case of the Dow, last year’s return was less than the 3-year average, so the return is falling.
Rask websites offer free online investing courses, developed by analysts that explain things like discounted cash flow (DCF) and the dividend discount model (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the Dow share price.
