‘D’ for Disruptive or Defensive: Dexus and Downer Stocks under Spotlight

  • Jul 07, 2020 AEST
  • Team Kalkine
‘D’ for Disruptive or Defensive: Dexus and Downer Stocks under Spotlight

Summary

  • Investors find defensive stocks attractive as they offer dividend payments and generally generate steady income, irrespective of the market conditions.
  • Real estate player Dexus announced that Dexus Australian Logistics Trust (DALT) acquired two high-quality industrial properties for A$173.5 million.
  • With this acquisition, the industrial property portfolio of Dexus increases to more than A$5 billion.
  • Downer EDI won road maintenance contracts in South Australia from the South Australian government department (DPTI) worth ~A$420 million.

At this time, the most trending sectors across the world are healthcare, technology, and gaming sectors, due to the ongoing COVID-19 pandemic there are high hopes in the healthcare sector companies to find out an effective vaccine or treatment. On the other hand, tech space remains in the spotlight in the current scenario. Governments have urged people to operate from home to the extent possible, and this has given rise to a need for improved IT infrastructure, including proper network and security measures in place. The lockdown has seen an increased demand for technology as corporates rush to get new tech services and equipment to enable work from home.

Despite the trending sectors, investors remain interested in defensive stocks as they offer dividend payments and produce steady income irrespective of the current market situations. The offerings given by these defensive players are in demand, and that makes these stocks more stable during volatile market conditions compared to the others.

The most significant benefit of having defensive shares is that they are not as risky as other regular stocks, and they offer increased dividend yield that can be made in a low-interest-rate environment.

During high volatility in the market, participants always prefer stocks with the potential to generate consistent returns. The market participants prefer players having past dividend record and better stability as compared to others.

In this article, we will talk about two ASX-listed defensive stocks- Dexus and Downer

Dexus Acquires Two Quality Industrial Assets

ASX-listed leading real estate player Dexus (ASX:DXS) is engaged in the management of a high-quality Australian property portfolio which is valued at nearly A$33.8 billion. The Company invests only in the properties of Australia and owns approximately A$16.8 billion of properties, with an additional A$17.0 billion of properties managed for its 3rd party clients.

With nearly 35 years of experience in development as well as asset management, and property investment, the Company has a demonstrated track record in risk and capital management, by offering excellent services to tenants. At the same time, Dexus has provided exceptional risk-adjusted returns for its investors.

DALT bought two quality industrial properties for A$173.5 million

On 7 July 2020, Dexus disclosed that Dexus Australian Logistics Trust (DALT) exchanged contracts for the acquisition two quality industrial properties. Dexus has a 51% interest in DALT.

The properties Dexus has brought include 37-39 Wentworth Street, Greenacre in NSW, and the Ford Facility at Merrifield Business Park, Mickleham in Victoria, for a combined price of A$173.5 million (Dexus’ share stands at A$88.5 million).

The Sydney site is at Greenacre in the south-west of the city and is leased to Tomkin and Real Dairy Australia. Part of the expansion of this site is under development for Real Dairy. Dexus disclosed that the property would produce a passing yield of 5% with fixed yearly increases of 3.0% per year.

The Ford Facility at Merrifield Business Park is under development for Ford Australia as their national spare parts distribution centre. Dexus stated that on completion, the asset would create a passing yield of nearly 5.25% with stable annual growth of 3.25% over the preliminary lease term.

Moreover, the Company disclosed that the acquisitions follow the completion or exchange of over A$1.6 billion of property purchase throughout the group during fiscal year 2020.

Every investor in DALT will pay for their share of acquisition expenses, with interest to be financed from Dexus’ current debt facilities.

Mr Darren Steinberg, CEO Dexus stated:

Stock Information: On 7 July 2020, DXS stock closed at A$9.220, down by 1.81%, with a market capitalisation of nearly A$10.25 billion. DXS stock has 1.09 billion outstanding shares trading on the ASX. The P/E ratio of the DXS stock stands at 6.530x, with an annual dividend yield of 5.35%.

Downer EDI Awarded Road Maintenance Contracts in South Australia

The dual-listed Company Downer EDI Limited (ASX:DOW) is a leading provider of integrated services across Australia and New Zealand. The Company is engaged in creating and maintaining the modern environment and work closely with its customers to assist them to succeed, by using world-leading insights and solutions to build, design, and sustain assets, infrastructure, and facilities.

Downer Group is one of the largest employers in South Australia with more than 3,500 employees. The Group offers the South Australian customers with asset management engineering, operations, maintenance, along with hospitality services in metropolitan and regional areas both.

On 7 July 2020, Downer disclosed that the South Australian Government Department of Planning, Transport, and Infrastructure (DPTI) awarded road maintenance contracts to the Company, valued at an estimated A$420 million over a maximum term of 13 years. Moreover, the road maintenance contract has provisions for further minor capital works.

Downer stated that the contracts would start on 2 November 2020. The contract would have an initial 7-year tenure along with two 3-year extension options.

Moreover, the Company also stated that new contracts would result in expanding the services provided by Downer to DPTI as well as maintaining 8,500km of roads in Metropolitan Regional North Zone of South Australia.

Mr Grant Fenn, Downer Chief Executive Officer stated:

Notably, the Company will overall deliver reliable road networks to ensure safe and efficient journeys as well as also give opportunities for local service suppliers and providers.

Stock Information: On 7 July 2020, DOW stock closed at A$4.440, in line with the previous close. With a market cap of A$2.64 billion, the Company has 594.7 million shares on the ASX. The P/E ratio of DOW stands at 12.760x, with an annual dividend yield of 6.31%.

 


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