Shares in Downer EDI have risen sharply as the engineering firm lifted its profit, resumed paying dividends, and said the $3.6 billion Waratah train project in NSW was now in very good shape.
Downer EDI on Thursday reported a net profit of $94 million in the six months to December 31, up from $84.9 million in the prior corresponding period.
The company also resumed paying a dividend, after a two-year break.
Downer affirmed its forecast for an underlying net profit, which excludes significant items, of around $210 million in the 2012/13 financial year, after it rose by 24.3 per cent in the first half to $105.5 million.
Shares in Downer EDI had jumped 38 cents, or 7.61 per cent, to $5.23 by 1335 AEDT on Thursday.
The Waratah project, which has been troubled by quality issues in China and production delays, was “now in very good shape,” chief executive Grant Fenn said during a market briefing.
The production rate in China and Cardiff, NSW, meant the company would now meet the revised schedule outlined in August 2012.
“We’ve now got 28 trains available for passenger service on the Sydney network, with the 29th imminent,” he said.
“This is slightly ahead of the program schedule reported last year.”
The company was on track to deliver the 78th Waratah train in mid-2014.
Downer also said there had been “no movement” on the forecast loss of $430 million upon completion of the Waratah project.
However, the group’s first half results showed an improvement in each of its infrastructure, mining and rail divisions.
“Each of our three divisions achieved substantial revenue growth, underlying EBIT (earnings before interest and tax) has grown over 12 per cent, and our cash performance was strong once again,” he said in a statement.
The group had work-in-hand worth $18.9 billion, down from $19.8 billion at the company’s full-year results in 2012.
Work-in-hand in the mining business had fallen by about $300 million, reflecting a run-off in long-term mining contracts.
Infrastructure work-in-hand was down by about $200 million in Australia and by about $200 million in New Zealand but could rise very quickly if the group was successful, as expected, on some key opportunities.
A fall of $200 million of work-in-hand in the rail division reflected a higher rate of production and delivery of Waratah trains.
Downer EDI declared an interim dividend of 10 cents per share, 70 per cent franked.
Morningstar analyst Ross MacMillan said Downer EDI had a strong performance across its three divisions in the first half, particularly in the infrastructure division.
The resumption of dividend payments showed that the board was confident of the group’s future.
The full year guidance was positive, and the company was on track to complete the Waratah train project, which was a relief to Downer EDI shareholders.
