If you had to use a short phrase or two to describe Leighton Holdings, it would be ubiquitous and highly profitable and becoming more so with news yesterday that 2007 earnings could hit a net $300 million.
Hardly a day goes by with out the company being announced on a short list or as winning a tender in construction, civil engineering and contract mining.
Then there’s diversification, with it buying into Queensland property group, Devine and its sniffing around energy wholesaler, retailer and producer, Alinta.
There was considerable market speculation that Macquarie Bank was eyeing off Leighton’s underperforming German parent, Hotchtief AG, which sent the share price soaring well above $20 a share.
Those those rumours came to naught but Macquarie and Leighton are close, partnering in many major civil engineering and infrastructure projects; through Leighton’s various arms, such as John Holland, Thiess or Leighton Contractors.
In fact you could say Leighton in its sphere of activities is as ubiquitous as Macquarie is in its.
Leighton has stumbled in several areas, problems with the Spencer Street Station and Sydney Hilton contracts caused write off, losses, management changes and embarrassment, as did moves into owning fibre optic cable.
But it’s managed to survive and keep intact its highly profitable business model and the ability to maintain a full and growing order book (by expanding into Macau casino building for one).
Its solid business model was emphasized yesterday by the forecast of a 45 per cent rise in earnings this financial year, after lifting them 61 per cent lift in the first half.
That sent punters chasing the tightly held stock (the German parent owns around 53 per cent, so the float is small and therefore the shares are becoming expensive). Leighton shares jumped by more than eight per cent, or more than $2 to finish at $27.29 after hitting a high of $27.90, a rise of $2.67.
Net profit for the half year of $190.01 million compared to $118.11 million in the first half of the 2006 financial year.
That saw Dividend lifted to 45c a share from 20, after earnings per share jumped to 68.3c from 42.9c.
“The directors are confident of reporting another solid operating profit in the second half and an increase in profit for the full year of approximately 45 per cent,” the company said in a statement to the ASX.
Leighton earned $276.07 million in the year to last June, which was a rise of 28 per cent. With the 45 per cent guidance, earnings could hit $300 million this financial year.
CEO Wal King was naturally pleased.
“The group’s result reflects strong contributions from a number of large construction projects in Australia, the contract mining of iron ore and coal, and another solid performance from our property development activities,” he said.
“The momentum in our business means that we expect our full year profit to be up by around 45 per cent on the previous year.”
He also believes that the present long construction cycle can continue for a while longer (it would seem longer than he previously thought)
Total revenue for the six months to December 31 was $5.7 billion, up a massive $1 billion from $4.7 billion in the first half of 2006.
The main drivers were engineering and infrastructure, which increased revenue by two per cent to $2.2 billion, mining and resources which was up 51 per cent to $1.9 billion.
“The group’s order book was boosted by the award of some $9.6 billion of new work, extensions and variations during the half,” said Mr King.
At the end of last December Leighton’s work in hand was $20.1 billion. This compares with $16.0 billion at June 30, 2006 and $14.8 billion at end of December, 2005.
“Providing significant momentum, the work in hand is expected to produce strong levels of revenue for the period and a full year revenue of approximately $12 billion,” the company said.
That will be around $2 billion up on the 2006 revenue figure.
