Downer lived up to its name this morning with a poor FY23 trading update & accounting irregularities

Nick Sundich Nick Sundich, December 8, 2022

Downer EDI (ASX:DOW) shareholders received a rude shock his morning. The engineering and infrastructure services company told shareholders it had identified accounting irregularities that resulted in over-stated earnings for a number of years. On top of all this, trading in FY23 so far has not been as good as expected.

 

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Maybe COVID wasn’t so good after all

Infrastructure companies such as Downer benefited from the pandemic due to government stimulus, resulting in more work for the company. After the Corona Crash, Downer’s shares rose over 140% in 18 months, mostly due to the company’s solid results.

 

Downer EDI (ASX:DOW) share price chart, log scale (Source: TradingView)

 

However, the company told shareholders it had identified a misreporting of revenue and work in one of its maintenance contracts – specifically between September 2019 and November 2022. A preliminary investigation had estimated its pre-tax earnings had been overstated by $30m-$40m cumulatively across the period. 

 

FY23 has been a downer (so far) 

Downer delivered further bad news to shareholders in its trading update. Four months since telling shareholders it anticipated 10-20% NPAT growth assuming no material disruptions, it told shareholders it had been impacted by adverse weather conditions and inflation. 

The company indicated these challenges last month, but had said these would not have a material impact. This morning, it was forced to admit they would not correct themselves in time to not have an impact on the overall FY23 bottom line. 

It now expects $210-$230m in NPAT for FY23. Considering it made a $225.3m NPAT in FY22, this projected result would be a 2% gain at best, a 7% retreat at worst. Again, this was assuming no further material disruptions. 

DOW shares initially tanked by more than 30% before settling around -21% in late morning trading.

 

 

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