Australia’s FY26 Infrastructure and Digital Boom: ABB & DOW

As we look ahead to Financial Year 2026, the Australian equity market is entering a phase marked by unusual clarity, and unusually powerful tailwinds. A decisive shift in monetary policy, a generational public infrastructure build-out, and a sweeping digital overhaul of national connectivity are converging to reshape the investment landscape. Against this backdrop, we’ve identified two standout names: Aussie Broadband (ASX: ABB) and Downer EDI (ASX: DOW). Together, they offer a rare opportunity to tap into both sides of this transformation, digital and physical, in a way that is diversified, high-conviction, and deeply aligned with structural change. Why This Pairing Works The appeal of ABB and DOW isn’t just in their individual narratives. It’s in how they work together. One offers exposure to the digital economy’s next phase of evolution; the other, to the physical build-out reshaping Australia’s public capital stock. They are non-correlated, thematically distinct, and fundamentally tied to the country’s most enduring policy trends. Source: Google Finance, ABB vs DOW – 1-year chart (2025) With rate cuts expected, the macro backdrop is turning favourable. Fiscal policy, meanwhile, is already hard at work. In this environment, we see ABB and DOW not as short-term trades, but as core positions for FY26, each a lever to capture the upside of Australia’s next investment chapter. Aussie Broadband: Service-Led Growth, Fibre Advantage, Symbio Synergies Support $5.30 Valuation Target Source: ABB, weekly chart (2025) Aussie Broadband (ASX: ABB) has rapidly established itself as Australia's fifth-largest broadband provider by eschewing commoditised price wars in favour of a differentiated strategy focused on superior customer service and high-performance network quality. This approach has cultivated a loyal customer base, earning it the accolade of the "Most Trusted Brand" in Australian telecommunications. The company operates a diversified model across four key segments: Residential, Business, Enterprise & Government (E&G), and Wholesale. This structure was significantly bolstered by the recent acquisition of Symbio Holdings, which added crucial Tier-1 voice network capabilities and strengthened its presence in the high-margin wholesale and enterprise markets. The core competitive advantage is twofold: powerful brand equity built on trust and a strategic, expanding proprietary infrastructure, which now includes over 1,886 km of fibre. This ownership of the "last mile" gives Aussie Broadband increasing control over its service quality and cost base, allowing it to attract and retain higher-value customers and positioning it as a premium provider in a market dominated by legacy incumbents. Strong Execution Against a Favourable Industry Backdrop Underpins a Compelling Growth and Income Narrative Flawless operational performance and a clear strategic roadmap are translating structural market changes into robust financial results and shareholder returns The investment case is anchored in the company's flawless execution against a backdrop of powerful, industry-wide tailwinds. The national rollout of the NBN's fibre upgrade program, coupled with mandated speed-tier changes effective from September 2025, creates a market-altering event that forces customers to actively choose a provider, playing directly to Aussie Broadband's strengths in high-speed plans. The financial results for the first half of fiscal year 2025 demonstrated powerful momentum, with pro-forma revenue growing 6.8% to $588.5 million and gross margin expanding to 37.0%. This performance, driven by strong growth in the higher-margin Business and E&G segments (up 12.7% and 13.2% respectively), led management to upgrade its full-year underlying EBITDA guidance to a range of $133 million to $138 million. The company's "Look-to-28" strategy provides a clear roadmap to more than double revenue to over $1.6 billion and deliver a compound annual growth rate for earnings per share exceeding 20%. This growth is not coming at the expense of shareholder returns; the company's strong cash generation funded both an increase in growth-focused capital expenditure to a range of $75 million to $80 million and the declaration of a 1.6 cents per share interim dividend and a 2.4 cents per share special dividend. A Premium Valuation Justified by a Superior Growth Trajectory and Strategic Execution Our discounted cash flow analysis, anchored by the company’s long-term strategic ambitions to surpass $1.6 billion in revenue, suggests an intrinsic valuation of $5.30 per share. The model assumes a revenue compound annual growth rate of approximately 15% through to fiscal 2028 and a steady expansion of underlying EBITDA margins. Comparatively, the company justifiably commands a premium to its larger, more mature peers. This is warranted by its demonstrably superior organic growth rates and a forecast for earnings per share to grow at a compound annual rate exceeding 20%, a stark contrast to the low-single-digit growth prospects of its incumbent rivals. From a technical standpoint, the stock displays positive momentum, trading consistently above key long-term moving averages. A solid floor of support appears to have been established in the $3.80 to $3.90 range, a level that has held on previous pullbacks. The most immediate level of resistance is found at the 52-week high of $4.30. A decisive move above this level would signal a continuation of the prevailing trend. The overall technical picture appears strong, underpinning the fundamental investment thesis. We are issuing a BUY rating. [Click here to read the full report] Downer (ASX: DOW): Buy Rating Initiated on Margin Expansion, Cash Strength, and Infrastructure-Led Growth Source: DOW, weekly chart (2025) Downer EDI (ASX: DOW) has successfully navigated a significant corporate pivot, emerging as a more focused and resilient enterprise. Once a diversified engineering and construction firm, it has strategically divested its more volatile mining and high-risk construction units to sharpen its identity as a pure-play leader in Urban Services across Australia and New Zealand. Its operations are now neatly aligned into three core divisions: 1. Transport, which accounts for over half of group revenue through its comprehensive road and rail infrastructure services. 2. Utilities, delivering essential lifecycle services for power, gas, water, and telecoms networks; and 3. Facilities, which provides long-term integrated management for critical assets in the defence, healthcare, and education sectors. The company’s primary competitive advantage lies in its sheer scale, with a workforce of approximately 30,000, it is one of the largest private employers in the region. This scale, combined with deeply entrenched relationships with government and blue-chip clients, underpins its ability to secure large, multi-year contracts, providing exceptional revenue visibility, as evidenced by a formidable work-in-hand portfolio of $37.4 billion. The Turnaround is Complete, with Financial Rigour Set to Meet a Generational Infrastructure Boom Our conviction in Downer is anchored in the belief that the market has not yet fully appreciated the depth of its successful transformation. The company is at an inflection point where a newly embedded culture of stringent operational discipline is converging with a multi-decade, government-backed infrastructure super cycle. The latest financial results for the first half of fiscal year 2025 provide compelling evidence of this shift. Underlying net profit after tax and before amortisation (NPATA) surged by an impressive 70.0% to $127.2 million, a figure made more remarkable by a simultaneous 110 basis point expansion in underlying EBITA margins to 3.7%. This demonstrates a clear focus on profitability over revenue for its own sake. The balance sheet has been significantly de-risked, with the net debt to EBITDA ratio falling to a conservative 1.3x, and management’s confidence was powerfully signalled by an 80% increase in the interim dividend. Looking ahead, Downer is ideally positioned to capitalise on unprecedented infrastructure investment driven by long-term trends like population growth, urbanisation, and the energy transition, with its transformation program having already delivered $180 million in cumulative annualised cost savings. A Clear Valuation Disconnect Offers an Attractive Entry Point Our 12-month price target of $8.75 is primarily derived from a Discounted Cash Flow (DCF) analysis, which indicates a fair value of $8.90 per share. This is based on conservative assumptions, including a five-year revenue compound annual growth rate of 4.0% and a terminal EBITA margin of 5.0%, supported by a Weighted Average Cost of Capital (WACC) of 8.17%. A comparative analysis reveals that Downer currently trades at a notable discount to its direct peers on a forward price-to-earnings basis. We believe this valuation gap is unwarranted given the company's de-risked balance sheet, superior earnings growth trajectory, and clearer earnings visibility, which is underpinned by a formidable work-in-hand portfolio of $37.4 billion. The technical picture provides strong confirmation of the underlying fundamental improvement. The share price is in a well-defined uptrend, trading comfortably above its key 50-day and 200-day moving averages. A "golden cross" pattern, a classic long-term buy signal, formed in late 2024, and momentum indicators like the Relative Strength Index (RSI) remain in strong territory. This bullish price action is not occurring in a vacuum; it is a direct reflection of the market progressively recognising the success of the turnaround strategy. We therefore issue our BUY rating, seeing a clear pathway for the stock to re-rate as the market fully prices in its enhanced earnings power and reliable dividend stream. [Click here to read the full report]