Maybe still some value left in the short here. Huntley's take on it:
DOW announced another significant profit downgrade. FY07 NPAT will be $101.5m compared to previous guidance of $157-$160m. DOW notes a combination of factors impacting the result including ‘dispute settlement, higher costs and delays and conservative contractual issues’.
Business Impact: A cost breakdown wasn’t provided with details expected in the FY07 result. Any management creditability which may have been restored over the past year is now substantially impaired. We think higher costs and dispute settlement are convenient excuses with the majority of the write-downs likely due to fixed price contract mispricing, similar to the $199m losses in FY06. 2H07 writedowns were partially offset by a one off $33m tax credit. We advise investors to exit the stock on market and sit back to wait while the dust settles. The situation is likely to get worse before it gets better. We currently have little confidence in any immediate recovery and think DOW has a lot of soul searching to do. Legal action initiated by shareholders who suffered from last year’s write-downs may trigger new claims against the company. MD Stephen Gillies will step down from the company effective immediately and will be replaced by Brent Waldron until a new CEO is appointed. Poor disclosure, shareprice volatility and ongoing uncertainty in future writedowns make price triggers and earnings difficult to forecast.
Forecast Impact: --
Recommendation Impact: Our intrinsic value is under review and likely to fall significantly. Business and price risk are now revised to High. Our recommendation is downgraded to Avoid and more detailed note will follow the full year result presentation on August 21, 2007.
DOW Price at posting:
0.0¢ Sentiment: Buy Disclosure: Not Held
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