ann out shocking, page-47

I swear I did not read the below article prior to my posting;

(A question before you read it)

What would you prefer:

1] DOW BS ratio 1:3 without the announcement and the SP on the way down
2] DOW BS ratio 3:1 with the announcement (all the bad news out) and the SP on the way up


Damage done for Downer as shares recover
January 31, 2011 - 3:00PM
Shares in Downer EDI continue to recover, up more than 2 per cent for the day after plunging 20 per cent on Thursday, but analysts say the company?s credibility has taken a beating.

The engineering firm last week announced a further writedown of $250 million on the Waratah train project in NSW, after admitting its initial timetable for the complex project had been too aggressive. The announcement followed an earlier provision of $190 million taken last June.

Commonwealth Bank analyst Ben Brownette said Downer management?s credibility has been seriously damaged by Thursday?s announcement.

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??(The) announcement was an admission by Downer that it has neither the expertise nor experience necessary to execute a contract as large or as complex as the Waratah project,?? Mr Brownette said in a research note. ??Further, beginning a review that uncovers a $250 million hole a month before the first train set was due to be delivered is astonishing.??

Shares in Downer were up 8 cents, or 2.1 per cent, to $3.88 in afternoon trade.

Downer last week also pushed back delivery of NSW?s overdue trains until at least April, due to technical problems.

The company said it would recruit additional senior personnel with ??the necessary skills and experience in large scale rolling stock manufacture programs?? to complete the Waratah train project.

Disappointed investors might question why that expertise wasn?t already in place. Shares in Downer EDI have fallen $4.17, or 52 per cent, over the past year.

Senior management says the underlying business is performing solidly, with a robust pipeline of work. In fact, nearly $7 billion in new contract wins have been announced in the first half of 2010/2011.

However, Downer says it expects first half earnings before interest and tax of $132 million - down from the $140 million reported for the first half of 2009/10.

Mr Brownette said it was likely Downer would undertake an equity raising, but the company should consider other options, given the underlying value in the business.

??We now view the probability of Downer raising equity at its first half results announcement as almost inevitable,?? Mr Brownette said.

??Despite a raising appearing likely, we feel the board and senior management should be courting investors with a view of realising the underlying value in the rest of the business.??

Credit rating agency Fitch has placed Downer on negative watch, but has so far made no change to the company?s BBB- rating.

??If Fitch were to review its methodology (which we do not rule out), we believe Downer would no longer hold an investment-grade credit rating,?? Mr Brownette said. ??We view this stock as un-investable given management credibility, high gearing, prospect of downgrade, further contract losses, and overall lack of transparency.??

AAP