DOW: Chevron Contract And Higher Multiple Will Shape Balanced Outlook

Analysts have nudged their price target for Downer EDI higher from A$7.75 to A$8.50. This reflects slightly stronger medium term revenue growth expectations and a willingness to ascribe a higher future earnings multiple, despite modestly softer margin forecasts.

What's in the News

• Awarded a long term maintenance and support contract by Chevron Australia for non process infrastructure at the Wheatstone and Gorgon facilities in Western Australia, with an estimated potential revenue of $750 million over a maximum 15 year term starting January 2026, subject to work orders being released (Client Announcements)
• Preparing to deliver maintenance, asset management and small capital projects under the Chevron contract, reinforcing Downer EDI's position in large scale resources infrastructure services in Western Australia (Client Announcements)
• Hosted an Analyst and Investor Day, providing updates on strategy, operations and financial outlook to the investment community (Analyst/Investor Day)

Valuation Changes

• The consensus analyst price target has risen from A$7.75 to A$8.50, reflecting a modestly higher assessed fair value for Downer EDI shares.
• The discount rate has increased slightly from 7.00 percent to 7.04 percent, implying a marginally higher required return in the valuation model.
• Revenue growth has been lifted from 7.03 percent to 7.44 percent per annum, indicating slightly stronger medium term growth expectations.
• The net profit margin has been reduced from 4.23 percent to 3.52 percent, indicating a notable downgrade to margin assumptions.
• The future P/E has been raised significantly from 11.7x to 15.3x, signalling a higher multiple being applied to forecast earnings.