Industrial infrastructure large-cap Downer Edi Ltd (ASX:DOW), better described as Downer Group, has inked a $750 million contract on Monday with none other than petrochemical supermajor Chevron to maintain facilities on Western Australia’s North West Shelf associated with the Gorgon gas project.
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The contract further solidifies a relationship between Downer and Chevron, with Monday’s execution notable given Downer has agreed to a 15-year scope of works (though, after ten years, the additional five exist as an option).
Downer is to take on responsibility for maintenance, asset management and “small capital projects for non-process infrastructure assets” at Chevron’s Wheatstone and Gorgon.
“Downer is a leader in the delivery of major maintenance services to customers in the Australian energy and industrial sectors,” DOW CEO Peter Tompkins said.
“This contract builds on a strong, long-standing relationship with Chevron and reinforces our shared focus on keeping our people safe, driving performance, and collaboration.”
So why hasn’t the share price budged? After news of the contract was disclosed, DOW shares pared earlier intraday losses (themselves slight) by jumping +0.35% to $7.79/sh. Just under 260K shares had traded hands by that point on Monday.
To be fair, DOW is already an established $5B market cap company, and it’s not exactly the kind of stock that attracts the attention of swing traders or similar creatures. YTD gains are up +47% as is, and on a 5Y basis, the company has been able to weather the post-COVID world, rising well above where its shares sat in 2021.
There’s also the fact its $750M contract expands over a 10-15Y timeframe, which really means $50-75M a year, depending on how you divide it. This back-of-the-envelope calculation is worthless for a serious valuation calculation, but it’s enough to underscore what may be travelling through investors’ heads.
It’s a good example of a slow-and-steady company that offers investors stable returns, as opposed to the admittedly more intoxicating world of junior microcaps wrangling one another in the dust for prominence.
DOW last traded at $7.79/sh.
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