Fund Manager Summary
The fund managers believe that the outlook for Downer EDI Ltd presents an opportunity for long-term value despite recent challenges. They note that the company's recent weak first half FY23 earnings were impacted by adverse weather and labour market conditions, leading to a downgrade in full year FY23 earnings guidance. However, in their opinion, the ongoing transition towards a higher quality urban services portfolio and the implementation of cost reduction initiatives targeting $100m per annum by FY25 are positive steps. The recent overhaul of the Board and senior management team is seen as a crucial move towards creating a more resilient and capital-light services business. Overall, the fund managers remain optimistic about Downer's potential to capitalize on growing, annuity-style contracts moving forward.
Source: Trading View
Commentary From The Managers
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Pendal Group
31 July 2025
$6.91
Summary
- DOW announced the sale of its 49% stake in Keolis Downer at an enterprise value of $132m.
- Renewed the Ausnet gas services contract for $200m over 3 years.
- This is incrementally positive news supporting DOW’s progression towards capital management initiatives.
- Industry conditions are very good, with an increased focus on business basics.
- Defence contracts are expected to offer additional revenue upside.
- Pendal Group continues to hold its position based on these developments.
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Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
Commentary From The Managers
Pendal Group
31 July 2025
$6.91
- DOW announced the sale of its 49% stake in Keolis Downer at an enterprise value of $132m.
- Renewed the Ausnet gas services contract for $200m over 3 years.
- This is incrementally positive news supporting DOW’s progression towards capital management initiatives.
- Industry conditions are very good, with an increased focus on business basics.
- Defence contracts are expected to offer additional revenue upside.
- Pendal Group continues to hold its position based on these developments.
Summary
L1 Capital
30 Sept 2024
$5.48
- L1 Capital continues to hold its position in Downer EDI Ltd.
- Downer has made significant progress towards its FY25 EBITA margin target of >4.5%, which is viewed as achievable.
- The Catalyst Fund has benefited from a shift in capital allocation policy at a portfolio company.
- This shift has led to a meaningful increase in dividends, a recommendation that L1 Capital has consistently advocated to the Board.
Summary
L1 Capital
31 Aug 2024
$5.74
- Downer EDI Ltd. shares strengthened by 12% over the month following FY24 results announcement.
- Reported an EBITA margin increase to 4.0% in H224, up 100bps from 3.0% in H223.
- The gap towards the 4.5% EBITA margin target is narrowing, driven by a successful turnaround in the utilities division.
- Cost-out program achieving $130m of targeted $175m, positioning Downer for further profitability improvements.
- Expect FY25 to be a transition year, moving towards a more resilient and profitable business model.
- Downer is evolving into a less capital-intensive and lower-risk services provider.
- Exposed to a growing pipeline of high-quality, annuity-style contracts.
Summary
L1 Capital
31 Mar 2024
$4.95
- Downer (Long +16%) shares saw an increase over the quarter.
- Targeted cost-out program increased by $75m p.a. to a total of $175m p.a. to be achieved by FY25.
- Utilities division reported a return to profitability during H1 2024.
- Cost-out program and profitability led Downer to reaffirm target EBITA margins of at least 4.5% in FY25.
- Company is exploring noncore divestments and finalising a revised capital allocation strategy.
- Expected transition year in FY24, with positive impacts starting to materialise in H2 2024.
- Renewed leadership at Board and senior management focused on efficiency and simplification.
- Anticipating Downer to evolve into a more resilient, less capital-intensive services business.
- Exposure to a growing pipeline of annuity-style contracts.
Summary
L1 Capital
28 Feb 2024
$5.06
- Downer EDI Ltd. shares increased by 18% following announcements of enhanced cost-cutting measures.
- The company is raising its targeted cost-out program by $75m p.a., totaling $175m p.a. by FY25.
- Downer’s utilities division reported a return to profitability in H1 2024.
- The expanded cost-out program has led Downer to reaffirm its target EBITA margins of at least 4.5% in FY25.
- The company is also exploring non-core divestments and finalizing a revised capital allocation strategy.
- Despite expectations of FY24 being a transition year, positive impacts from cost base improvements and the utilities division are anticipated in H2 2024.
- With a renewed leadership team committed to efficiency and simplification, Downer is expected to evolve into a more resilient and less capital-intensive services business.
- The focus is on exposure to growing, annuity-style contracts for future growth.
Summary
L1 Capital
30 Nov 2023
$4.24
- Downer EDI Ltd shares strengthened by +12% over the month.
- The company reaffirmed its goal of achieving $100m p.a. cost reductions by the end of FY24.
- Target EBITA margins are set to exceed 4.5% in FY25.
- Sale of RepurposeIT asset resulted in cash proceeds of $85m, showcasing effective portfolio simplification.
- FY24 is expected to be a transition year for Downer, with improvements anticipated in the second half.
- Benefits from the cost-out program and utilities division turnaround are expected to materialize.
- A renewed leadership team at both the Board and senior management levels is focused on self-help measures.
- The company aims to evolve into a more resilient and less capital-intensive services business.
- Focus on growing, annuity-style contracts is a key aspect of their strategy.
Summary
L1 Capital
31 July 2023
$4.39
- Downer EDI Ltd shares strengthened by +7% over the month.
- The company is progressing towards a higher quality urban services portfolio.
- A renewed leadership team is in place at both the Board and senior management levels.
- Downer is pursuing additional self-help measures and simplification initiatives.
- There is a cost reduction target of $100m per annum by FY25.
- Further asset sales are anticipated to streamline operations.
- These changes aim to transform Downer into a more resilient, less capital-intensive and lower risk services business.
- The focus is on growing, annuity-style contracts.
Summary
L1 Capital
30 June 2023
$4.11
- Downer (Long +14%) shares increased in June due to progress in transitioning to a higher-quality urban services portfolio.
- Sale of Australian Transport Projects business completed, eliminating a more volatile and less profitable division.
- New leadership team established at both Board and senior management levels.
- Continued pursuit of self-help measures and simplification initiatives within the core business.
- Cost reduction target set at $100m p.a. by FY25.
- Additional asset sales planned to further improve business structure.
- Expectations that these changes will enhance Downer’s profile as a resilient, less capital-intensive services business focused on annuity-style contracts.
- Key detractors from portfolio performance included short positions in high-multiple growth/technology stocks during June.
- Growth stocks outperformed Value stocks significantly.
Summary
L1 Capital
31 Mar 2023
$3.43
- Downer EDI Ltd shares fell by 8% after weak first half FY23 earnings results.
- Performance impacted by challenging weather and labour market conditions.
- Below-market cash flow conversion due to working capital build-up.
- Company downgraded its full year FY23 earnings guidance for the second time, following an initial downgrade in December 2022.
- Despite disappointing results, L1 Capital sees medium-term value in Downer.
- Transitioning towards a more selective and higher quality urban services portfolio.
- Exiting lower-margin and higher-risk segments as part of strategic shift.
- Initiatives underway include goals for cost reduction of $100m p.a. by FY25.
- Considerable overhaul of the Board and senior management team, with recent departures of Chairman, CEO, and CFO.
- L1 Capital believes these changes will contribute to Downer becoming a more resilient, capital-light, and lower risk services business.
- Focus on exposure to growing annuity-style contracts.
Summary
L1 Capital
28 Feb 2023
$3.16
- Downer (Long -16%) shares declined due to weak first half FY23 earnings affected by challenging weather, labour market issues, and cash flow conversion problems.
- The company downgraded its full year FY23 earnings forecast for the second time, indicating ongoing challenges.
- Despite these disappointments, L1 Capital continues to see value in Downer over the medium term.
- Downer is transitioning towards a more selective and higher quality urban services portfolio by exiting low-margin and higher-risk segments.
- Aiming for a $100m per annum cost reduction
target by FY25, several self-help and simplification initiatives are in progress. - The company has undergone a significant overhaul of its Board and senior management, with key departures including the Chairman, CEO, and CFO.
- L1 Capital believes these leadership changes will help transform Downer into a more resilient, capital-light services business focused on growing, annuity-style contracts.
Summary
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
ANALYST INSIGHT
Equity Research Analyst
"It appears that while Downer EDI Ltd faces immediate headwinds, the ongoing leadership shake-up and strategic pivots may just set the stage for a resilient turnaround, potentially transforming it into a capital-light powerhouse in urban services."
Last Updated: 31 Jul 2025
Query The Data
Frequently Asked Questions
Who is investing in Downer EDI Ltd (ASX:DOW)?
Fund managers including L1 Capital and Pendal Group have invested in Downer EDI Ltd (ASX:DOW).
Why do fund managers invest in Downer EDI Ltd?
Fund managers are investing in Downer EDI Ltd due to its potential for medium-term value despite recent challenges. The company is transitioning to a higher quality urban services portfolio, focusing on lower-risk, higher-margin segments. Initiatives aimed at cost reduction and operational simplification, alongside significant changes in leadership, are expected to enhance resilience and profitability. These strategic shifts position Downer for growth in annuity-style contracts, making it an attractive investment opportunity.
What happened to Downer EDI Ltd (ASX:DOW)?
Fund managers are investing in Downer EDI Ltd due to its recent strategic moves, including the sale of its 49% stake in Keolis Downer for $132 million and the renewal of a $200 million gas services contract with Ausnet. These developments are seen as positive indicators of the company's capital management and operational stability. Additionally, favorable industry conditions and potential revenue growth from defense contracts further enhance the investment appeal.