Construction group, Leighton Holdings has once again reminded investors why it is one of the premier growth stocks at the moment.
It’s well run, financially strong, diversifies intelligently into growing businesses, expanding parts of the world, and is not afraid to take its bad medicine up front and get on with life.
The shares are up more than $4 thid week, with more than half of that increase coming yesterday after the trading update for the March 9 months. The shares rose almost 5% to $52.81, up almost $2.10 on the day
Leighton is among those companies seen as a longer term winner from the Federal Budget and the pot of gold to be sprinkled over infrastructure in coming years.
Leighton is so big and so diversified that it will win more than its share of businesses from these funds.
The company yesterday revealed a 37% rise in net operating profit for the nine months to the end of March, and confirmed previous guidance for full year profit growth of more than 30%.
Work in hand jumped 48% in the 12 months to March 31 as the order book swelled to $28.1 billion from $19 billion at the end of March 2007.
The company has revealed more than $1.5 billion in contracts this week alone to build oil pipelines and coal mines in India and a number of big projects in Australia and the Middle East. These new contracts were not included in the March quarter figure: so far in May the company has been awarded the best part of $2 billion in new contracts.
But Leighton also said it had written off all of its $60 million investment in Connector Motorways, operator of Sydney’s new, but troubled, Lane Cove Tunnel, and had also written down its $72 million investment in JF Infrastructure, which also included that group’s investment in the tunnel operator.
This is an update of an announcement in March when the Hong Kong based shareholder, Cheung Kong Infrastructure Holdings Limited, wrote down its 19% investment to nil
Leighton said at the time: "Leighton holds a direct 11.1% stake in Connector Motorways valued at $60 million and a further 9.5% stake valued at $57.5 million, via the company’s 50% stake in JF Infrastructure.
"Leighton has made an allowance in its forecast for the full year for 70% of the value of the company’s direct and indirect holdings in Connector Motorways. Leighton confirms its recent guidance for 2008 that profit will be up by at least 30% on last year’s record result of $450m."
So that meant a write down of 30%, now effectively 100% or $32 million. The company also booked a profit of $150 million in selling its assets in the UAE into a new joint venture
“Following the completion of the final transfer arrangements and conditions precedent, the Group has also recognised a net gain of $150m on the sale of the Group’s Gulf Leighton operations into Al Habtoor," the company said. That will effectively net out any negative impact of the write down as a significant item in the full year accounts.
CEO Wal King stated the obvious when he said in the statement to the ASX yesterday that the resources boom is set to continue for coal, iron ore and energy-related commodities into the next decade.
But it’s true: and the company is a major beneficiary, picking up contract mining deals from a host of miners, including Rio Tinto. Leighton is now so dominant that it can’t be ignored.
Leighton said revenue for the nine months to March 31 rose 16% to $10 billion ($8.6 billion in the nine months to march 31, 2007) and profit attributable to shareholders jumped 37% to $375 million.
Leighton said its United Arab Emirates-based venture with Al- Habtoor Engineering secured a 1.55 billion dirham ($450 million) venture to build a residential and commercial complex in Dubai. Work in hand was $28.1 billion, up from $19 billion at the corresponding point in 2007.
Mr King said Leighton "remains on track for an increase in profit for the full year of at least 30 per cent on last year’s $450 million, which was up 63 per cent on the previous year.
"The result is a positive indicator for the full year and is consistent with the company’s guidance that 2008 profit will be up by at least 30 per cent on last year’s record result of $450 million," he said.
"The Group is in an enviable position in that its portfolio can be managed to ensure optimal value realisation from assets, developments and operating performance," Mr King said.
"We have portfolio diversity which enables us to consistently deliver strong returns to shareholders."
"The Group’s outlook remains very positive and we see an excess of opportunities in resources, infrastructure and property, both here in Australia and across Asia," he said.
"The resources boom is set to continue for coal, iron ore and energy related commodities into the next decade, and current investments, and those planned to eliminate bottlenecks, should support increased export volumes in the future.
"The step up in investment in new mines and related infrastructure will lead to increased export volumes over the next few years and supports good, long term opportunities for contract mining.
"Investment in infrastructure will continue to be driven by a growing population, past under investment and a commitment by governments to resolve some of the existing bottlenecks and deficiencies."
Leighton gave ticks of approval to the three infrastructure funds announced in the Rudd government’s budget on Tuesday – Building Australia, health and education.
"We welcome the Federal Government’s … announcement of three new funds that will provid
