Diversified services provider Downer EDI Limited (ASX: DOW) has been one of the biggest movers in morning trade with a stunning 19% jump to $7.46 following the release of its half-year results.
Although total revenue came in just 1% higher over the prior corresponding period to $3.6 billion, profit after tax for the period increased a solid 8.5% to $78.2 million. This translated to diluted earnings per share of 17.1 cents, up 13.2% on the first half of last year.
The successful diversification of its business away from the mining sector appears to be behind the strong result.
Its Transport Services segment turned in a particularly impressive performance during the half. Revenue in the segment increased 13.5% to $911.2 million thanks to the acquisition of RPQ and large infrastructure projects such as the Newcastle Light Rail project.
The overall result would have been even better had its Mining segment not seen revenue drop a massive 18.7% to $635.4 million. The loss of the Christmas Creek contract from Fortescue Metals Group Limited (ASX: FMG) was clearly a big blow for the business.
What's next for Downer EDI?
Although this result was clearly a strong one, I believe it was management's outlook which sent the shares rocketing. For the full year management is now targeting net profit after tax of around $175 million, compared to its previous guidance of $163 million.
Guidance was lifted following a series of significant contract wins which has increased the company's work-in-hand by over 13% to $21.1 billion.
These include work on the High Capacity Metro Trains in Victoria and Sydney Growth Trains in New South Wales.
Is it a buy?
Whilst I am very impressed with Downer EDI's result, unfortunately I feel like I've missed the boat on this one now.
After today's gain its shares are changing hands at just under 20x trailing earnings, which is a little on the expensive side for the sector.
Because of this I'll be sitting this one out and focusing on other areas of the market instead.
