UBS sees Downer EDI as a restructuring story that will position the company to deliver free cash flow of at least $300m.
The broker’s scenario analysis envisages a plan that is consistent with Downer’s plan to divest its capital-intensive mining and laundries operations and wind down its problematic construction operations.
The broker notes after the restructure, Downer will be focussed on its core urban services businesses, with its business model less cyclical and providing more predictable revenue.
UBS thinks the divestment of mining and laundries operations will be a key catalyst. The broker upgrades its rating to Buy from Neutral. Target is raised to $5 from $4.50.
Sector: Commercial & Professional Services.
Target price is $5.00.Current Price is $4.44. Difference: $0.56 – (brackets indicate current price is over target). If DOW meets the UBS target it will return approximately 11% (excluding dividends, fees and charges – negative figures indicate an expected loss).