Downer EDI Ltd

L1 Capital Long Short Fund continues to hold its position in Downer EDI despite a 16% decline in share price following weak first-half FY23 earnings. The results were impacted by challenging weather, labor market conditions, and below-market cash flow conversion. Downer also downgraded its FY23 earnings guidance for the second time. However, L1 Capital remains optimistic about the company's medium-term prospects. Downer is undergoing a strategic shift toward a higher-quality urban services portfolio, with efforts to exit lower-margin, higher-risk segments. Key self-help initiatives are in place, including a $100 million annual cost reduction target by FY25. A significant overhaul of the Board and senior management, including the departure of the Chairman, CEO, and CFO, is expected to provide renewed leadership and drive transformation. L1 Capital believes that these changes, along with the company’s focus on capital-light, annuity-style contracts, will help position Downer for a more resilient and sustainable future.

L1 Capital Long Short Fund continues to hold Downer EDI Ltd despite a challenging first half of FY23, where the company reported weak earnings due to adverse weather, labor market conditions, and below-market cash flow conversion. The company also downgraded its FY23 earnings guidance for the second time. However, L1 Capital remains optimistic about Downer's long-term potential. The company is transitioning towards a higher-quality, more selective urban services portfolio by exiting lower-margin, higher-risk segments. Downer is also implementing several self-help initiatives, including a cost reduction target of $100m per annum by FY25, alongside a significant overhaul of its senior leadership team. L1 Capital believes that these changes, coupled with a shift towards more resilient, capital-light, and lower-risk business segments, will position Downer for sustained growth in the medium term.

L1 Capital Long Short Fund continues to hold its position in Downer EDI, as the company’s shares increased by 14% in June, reflecting progress in its transition towards a higher-quality urban services portfolio. Downer completed the sale of its Australian Transport Projects business, a more volatile and less profitable division, and continues to execute a transformation strategy under a renewed leadership team. This includes self-help measures such as a $100m annual cost reduction target by FY25 and further asset sales. These initiatives are expected to make Downer a more resilient, less capital-intensive, and lower-risk services business, better aligned with growing annuity-style contracts. Despite some short positions in high-multiple growth stocks detracting from performance in June, L1 Capital remains optimistic about Downer’s ongoing strategic transformation.

L1 Capital Long Short Fund continues to hold Downer EDI Ltd due to the company's progress in transforming its portfolio towards higher-quality urban services. Shares rallied following the completion of the sale of Downer’s Australian Transport Projects business, a less profitable and more volatile division. With a renewed leadership team at both the Board and senior management level, Downer is focused on simplifying its operations and implementing self-help measures. This includes a cost reduction target of $100 million per annum by FY25 and further asset divestitures. L1 Capital believes these efforts will result in a more resilient and capital-light business, better positioned to benefit from growing, annuity-style contracts in the urban services sector.

L1 Capital Long Short Fund continues to hold its position in Downer EDI, as the company’s shares rose by 7% during the month. Downer is making significant progress in its transition towards a higher-quality urban services portfolio, supported by a renewed leadership team at both the Board and senior management levels. The company is pursuing a series of self-help measures and simplification initiatives, including a target to reduce costs by $100 million annually by FY25 and further asset sales. These actions are expected to help Downer evolve into a more resilient, lower-risk services business with a focus on growing, annuity-style contracts. L1 Capital remains positive about the long-term outlook, anticipating that these strategic moves will transform Downer into a less capital-intensive, higher-quality company.

L1 Capital Long Short Fund has updated its investment thesis on Downer EDI Ltd, noting a strong share price performance driven by the company’s progress in meeting its cost reduction and margin improvement targets. Downer reaffirmed its commitment to achieving $100 million per annum in cost reductions by the end of FY24 and a target EBITA margin exceeding 4.5% by FY25. Additionally, the company’s sale of its non-core RepurposeIT asset for $85 million highlights its ongoing portfolio simplification strategy. While L1 Capital Long Short Fund continues to expect FY24 to be a transition year, it anticipates solid improvements in the second half as the benefits of the cost-out program and turnaround of the utilities division begin to materialize. The Fund remains confident that the company’s renewed leadership, focused on self-help measures and simplification, will enable Downer to evolve into a more resilient, lower-risk services business with a strong focus on growing, annuity-style contracts.

L1 Capital Long Short Fund continues to hold its position in Downer EDI Ltd. following a positive update on the company’s progress. Downer’s shares strengthened after the company announced an increase in its targeted cost-out program to $175m per year, set to be achieved by FY25. Additionally, the successful return to profitability of its utilities division in H1 2024, along with the expanded cost-out program, reinforces the company’s ability to meet its EBITA margin target of at least 4.5% by FY25. Downer is also exploring non-core divestments and refining its capital allocation strategy. While FY24 is expected to be a transition year, L1 Capital expects positive impacts from cost base improvements and the utilities division’s performance to become evident in H2 2024. With a renewed leadership team focused on efficiency and simplification, L1 Capital sees Downer evolving into a more resilient, less capital-intensive business with exposure to growing, annuity-style contracts.

L1 Capital Long Short Fund continues to hold its position in Downer EDI Ltd., following a strong quarter where shares gained due to the company’s announcement of an expanded cost-out program. Downer now targets $175 million in annual cost savings by FY25, up from the previous target, and the successful return to profitability of its utilities division during H1 2024 has been a positive driver. The company reaffirmed its target of achieving at least 4.5% EBITA margins by FY25. Additionally, Downer is exploring non-core divestments and refining its capital allocation strategy. While FY24 is expected to be a transition year, L1 Capital Long Short Fund anticipates that the full benefits from cost improvements and the utilities division’s recovery will become evident in the second half of 2024. With renewed leadership focused on efficiency and simplification, the Fund believes Downer is well-positioned to evolve into a more resilient and lower-risk services business, benefiting from a growing pipeline of stable, annuity-style contracts.

L1 Capital Long Short Fund continues to hold Downer EDI Ltd, following a strong share price performance after the company’s FY24 results. Downer reported an increase in its EBITA margin to 4.0% in H2 FY24, up 100bps from the previous half, largely due to a successful turnaround in its utilities division, which moved from loss-making levels in FY23. This improvement, along with ongoing cost-saving initiatives (with $130m achieved out of a $175m target), positions Downer for further profitability gains in the coming year. While FY25 is expected to be a transition year, Downer is making significant progress in evolving into a more resilient, profitable, and lower-risk business. The company is increasingly exposed to high-quality, annuity-style contracts, reducing its capital intensity and risk exposure. L1 Capital believes that Downer’s ongoing improvements and strategic shift should support its long-term value.