potential long trade, page-23

Well guys, this one has been on my radar since $8.00. I have been patiently waiting for the SP to collapse and have decided that it may be a good time to buy, so loaded the wagon today.

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Deutsche Bank 26/03/2010 1 Buy $9.10 26.2%

The broker believes there are three negative factors hanging over Downer at present - a possible equity raising, the effect of the Qld rains and an underperforming Engineering division.

But not only does the broker believe the Engineering division is exposed to high growth markets in the medium term, and that the Qld rains weren't actually as bad as they were last year, it believes all negative factors have been well priced in by the market, including a capital raising.

On that basis, says the broker, Downer is compelling value at this level.

Target price is $9.10 Current Price is $7.15 Difference: $1.95
If DOW meets the Deutsche Bank target it will return approximately 27% (excluding dividends, fees and charges).
Credit Suisse 12/03/2010 1 Outperform $10.00 38.7%

Target $10.00 (was $10.15). Following the downgrade in credit rating of Reliance Rail (the entity delivering the NSW Rail PPP project) the broker has trimmed its earnings forecasts for the company, which means a reduction in price target.

Operationally there is little change from the credit rating downgrade and so there is no change to the broker's Outperform rating on the stock.

Target price is $10.00 Current Price is $7.15 Difference: $2.85
If DOW meets the Credit Suisse target it will return approximately 40% (excluding dividends, fees and charges).
Macquarie 12/03/2010 1 Outperform $10.05 39.4%

The broker notes Reliance Rail's credit rating has been cut to Ba1 and it suggests this will have some negative implications for the company with respect to refinancing debt in that division in 2015.

Given the lack of any near-term impact the broker retains its earnings forecasts and Outperform rating on the stock as it continues to trade at a discount to peers.

Target price is $10.05 Current Price is $7.15 Difference: $2.9
If DOW meets the Macquarie target it will return approximately 41% (excluding dividends, fees and charges).
Citi 12/03/2010 1 Buy, Medium Risk $9.60 33.1%

The market is worried about 49% owned Reliance Rail in the UK and Citi analysts today put in an effort to explain what exactly is happening and what are the risks. The analysts explain Moody's is concerned about a funding gap at the two operators of UK monolines, not so much about the two operators going bust (even though that is a possibility).

All in all, the analysts seem convinced a solution will be found, if not through the banks than possibly through the bondholders, and point out that even if Downer EDI would face Reliance Rail going bankrupt, the overall impact would still be minor.

As the concerns have weighed down the share price, the analysts suggest now is a good time to buy.

Target price is $9.60 Current Price is $7.15 Difference: $2.45
If DOW meets the Citi target it will return approximately 34% (excluding dividends, fees and charges).
BA-Merrill Lynch 26/02/2010 1 Buy, Medium Risk $10.00 38.7%

Downer's result beat the broker by 7% on pricing discipline. While FY10 guidance was reiterated, management suggested strong growth ahead in FY11-12 driven particularly by the mining and energy sectors.

The broker agrees, noting very solid mining margins and the opportunities ahead from resources and LNG.

Target price is $10.00 Current Price is $7.15 Difference: $2.85
If DOW meets the BA-Merrill Lynch target it will return approximately 40% (excluding dividends, fees and charges).
JP Morgan 26/02/2010 1 Overweight $9.35 29.7%

1H10 net profit fell short of the broker, who notes weaker than expected Works result, a significantly stronger than expected Mining result, 12% growth in Group work-in-hand and good cash generation. FY10 guidance for growth of around 5% was reiterated and all up, the broker called it "resilient, if relatively unspectacular".

The broker expects that work in hand will continue to increase, while bolt-on acquisitions should also feature over the medium-term.

The broker expects the combination of these influences to drive at least high-single digit per annum revenue growth over the medium term, and with the stock trading at 13.0x FY11, the broker thinks the stock represents an attractive opportunity to leverage the expected growth. Overweight maintained.

Target price is $9.35 Current Price is $7.15 Difference: $2.2
If DOW meets the JP Morgan target it will return approximately 31% (excluding dividends, fees and charges).
UBS 26/02/2010 1 Buy $9.50 31.8%

The result was in line with expectations with cash flows improving and balance sheet solid, UBS says.

Outlook is seen as improving with demand expected to be better in all major markets in 2011.

Target price is $9.50 Current Price is $7.15 Difference: $2.35
If DOW meets the UBS target it will return approximately 33% (excluding dividends, fees and charges).
RBS Australia 26/02/2010 3 Hold $8.01 11.1%

Interim results contained few surprises according to the broker and post the result it notes while the balance sheet is in good shape capital demands appear to be increasing.

The group's order book remains solid and the broker notes profit guidance is unchanged, so post the result there is no change to its Hold rating.

Target price is $8.01 Current Price is $7.15 Difference: $0.86
If DOW meets the RBS Australia target it will return approximately 12% (excluding dividends, fees and charges).
Aspect Huntley 03/02/2010 2 Upgrade to Accumulate from Hold - -
Update database.

Current Price is $7.15. Target price not assessed.