Downer EDI flags 'account irregularities': Dip buyers soften the dive

Thu 08 Dec 22, 11:29am (AEST)
REIT 13 Industrial Warehouse
Source: iStock

Key Points

  • Downer said 'accounting irregularities' have overstated earnings by as much as $40 million
  • The company downgraded its FY23 outlook due to adverse weather conditions and high costs
  • Downer shares are down -38.6% year-to-date

It's a blowup of epic proportion. Downer EDI (ASX: DOW) shares nosedived as much as 31% as in early trade after 'accounting irregularities' overstated recent earnings by up to $40 million.

The timing couldn't be any worse, with longstanding CEO Grant Fenn announcing his retirement last Thursday, 1 December, which will become effective in February 2023.

In the leadup to Thursday's selloff, Downer shares were already on a four-day losing streak, down -7%.

Account irregularities and earnings downgrade

Downer said the accounting irregularities result in a historical overstatement of pre-tax earnings between $30 million to $40 million, accumulated across FY20-23.

"... a detailed investigation has been initiated and is being treated with the highest priority," the company said in a statement.

The pain doesn't stop there.

Downer downgrade its FY23 guidance due to "difficult weather conditions and elevated cost to serve issues ... particularly in Australia's Eastern States and New Zealand."

The company expects FY23 net profits to be between $210 million and $230 million compared to $225.3 million in FY22.

The guidance provided in August was expecting 10% to 20% growth in underlying net profit.

“Although the business has a general skew to the second-half, we think that the challenge for the last seven months of FY23 has become too large,” said CEO Grant Fenn.

“Our Road Services and Utilities businesses have been heavily impacted by weather and all businesses have been battling with staff shortages and supply chain issues. These issues are dissipating but not in time for 2023 earnings," he added.

Dips and dip buyers

Downer shares opened -29.4% lower, its lowest point since May 2020.

Dip buyers quickly stepped up after the stop hit a low of -31.0% shortly after open and staged a V-shaped bounce in the first hour of trade

The stock is currently trading -21.3% just before noon or a 13.9% bounce from session lows.

Downer share price chart
Downer share price chart (Source: TradingView)


Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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