Shares in Downer EDI soared to a seven-year high on Thursday morning after the contractor lifted its full-year profit forecast as public sector work now dominates its revenues amid a continued transition away relying on the resources sector for growth.
The shares surged to close 13 per cent higher at $7.07 after hitting a high of $7.46 - its best level since February 2010.
![Downer EDI workers work on building new rail carriages.](/web/20170204194729im_/http://www.smh.com.au/content/dam/images/g/h/i/5/q/s/image.related.articleLeadwide.620x349.gu3nw2.png/1486019854428.jpg)
Thursday morning, Downer raised to "around $175 million" from $163 million its forecast for the year to June 30 net profit.
In the December half, the mining division remains a drag on earnings, with both revenues and earnings declining, but a strong showing from divisions such as transport services, engineering, construction and maintenance underpinned a stronger than expected profit earned in the first half.
The net profit in the December half was $78.2 million, up from $72.1 million year earlier, on revenue of $3.3 billion, up 2.1 per cent. This was slightly ahead of analyst forecasts of a $69.5 million net profit for the half.
The interim dividend was steady at 12¢ on earnings a share that rose to 17.1¢ from 15.1¢.
"I'm very pleased with the result," Downer's chief executive, Grant Fenn, told analysts. "The results are strong in earnings and cashflow and trading to date indicates the company will deliver an improved full year.
"We're successfully transitioning to public service deliverability", he said, with activities in this area such as public transport services and the like now accounting for around 58 per cent of revenues. In telecommunications, lower revenue from Foxtel, for example, has been offset by a rising exposure to the NBN roll-out, for example, with the group "working hard to grow this business", Mr Fenn said.
The ongoing pressure on governments to cut costs would feed through to further privatisations, he said, which should be good for future growth in group revenue.
Earnings in the half suffered from the loss of the contract mining contract at the Christmas Creek iron ore mine owned by Fortescue Mining, he said, although Downer was optimistic that Indian investor Adani would receive approvals to proceed with the Carmichael coal mine planned for Queensland.
"There is significant upside potential if the Carmichael project gets the go ahead, which we expect," Mr Fenn said. "If we move into Adani, you will see the [contract mining business operated by Downer] in growth mode."
Downer's Fenn also expressed ongoing interest in acquisitions, as it seeks to expand its product offering and geographic reach.
"There are things on the go," he said at the analyst briefing. "We are pretty active in that space."