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Commodities Trading Ideas & Charts

Downer’s Transformation to Urban Services Business Continues with More Mining Sold Down

In the past, Downer has also underperformed from an operational perspective, but the firm now appears to have learned some hard lessons. The company is pursuing a more capital-light business model for the future, with an emphasis on urban services. In late October 2014, Downer acquired Tenix, a major provider of long-term operations and maintenance services to the power, gas, water, industrial, and resources sectors in Australia and New Zealand. In April 2017, it bought facilities manager Spotless Group.

Key Considerations

  • In late fiscal 2014, Downer completed a high-profile state government rolling stock contract that had weighed on the company’s reputation for the past five years.
  • Based on AUD 36 billion of work-in-hand, Downer has over two and a half years of revenue life, close to the 2.5 year five-year historical average. This is courtesy of Spotless’ additions, many of which are considerably longer dated than mining and EC&M contracts.
  • A key concern in relation to future earnings relates to increased uncertainty surrounding the level and timing of new domestic infrastructure projects by the federal and state governments.

Company Profile

Downer operates engineering, construction, and maintenance; transport; technology and communications; utilities; mining; and rail units. But the future of Downer is focused on urban services, and mining and high-risk construction businesses are being sold down. The engineering, construction, and maintenance business has exposure to mining and energy projects through consulting services. The mining division provides contracted mining services, including mine planning, open-cut mining, underground mining, blasting, drilling, crushing, and haulage. The rail division services and maintains passenger rolling stock, including locomotives and wagons.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.               

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Commodities Trading Ideas & Charts

Con Ed four natural gas storage facilities with a combined Capacity

The principal asset of the joint venture is three natural gas pipelines with a total capacity of 3 billion cubic feet per day and four natural gas storage facilities with a combined capacity of 41 Bcf. The pipelines and storage facilities are all located in New York and Pennsylvania. The sale of the joint venture for $1.225 billion was in line with our estimate and has no impact on our fair value estimate or EPS estimates. We had already assumed Con Ed would divest its gas transmission investments, following comments in the 2020 10-K that it was considering strategic alternatives for its interest in Stagecoach. Stagecoach is the primary operating asset for the Con Edison Transmission segment, or CET, contributing $0.17 per share in 2020, or about 4% of consolidated EPS.

In March, we reduced our EPS estimates from 2021-2024 by $0.04 to $0.06 per share due in large part to the dilutive impact of our assumption that Con Ed would exit the gas transmission business. At that time, we also established a 2025 EPS estimate of $5.00, resulting in a 4.1% average annual EPS growth rate near the bottom of ConEd’s EPS growth target of 4%-6%. CET also has a projected 8.5% ownership interest in the proposed 300-mile Mountain Valley Pipeline. In 2019, exercised its option under the MVP joint venture agreement to cap its cash contributions at $530 million. In May, MVP announced a six-month delay in the projected startup and an increase in the estimated cost to $6.2 billion from the previous estimate of $5.8 billion to $6.0 billion.

We remain concerned the MVP will never be completed due in large part to the ongoing delays and increasing uncertainty with respect to obtaining necessary permits for waterbody and wetland crossings because of ongoing court challenges. Dominion Energy and Duke Energy elected to abandon The Atlantic Coast Pipeline, a project also moving Appalachian shale gas to Virginia and North Carolina, last year after running into similar challenges.

Company Profile

Con Ed is a holding company for Consolidated Edison Company of New York, or CECONY, and Orange & Rockland, or O&R. These utilities provide steam, natural gas, and electricity to customers in south eastern New York–including New York City–and small parts of New Jersey. The two utilities generate roughly 90% of Con Ed’s earnings. The other 10% of earnings comes from investments in renewable energy projects and gas and electric transmission. These investments have resulted in Con Ed becoming the second-largest owner of utility-scale PV solar capacity in the U.S.       

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.