Quietly, without too much fuss, Leighton Holdings, the country’s biggest civil engineer and contractor, saw its share price rise $1.47 at one stage yesterday before settling back to close 88c higher at $31.37.
That’s still around $1.88 below its all time high of $33.25 reached just before the present market volatility was triggered three weeks ago.
But the rise more than reversed an odd sell-off on Friday.
The broader market was up yesterday because resources were bullish after strong rises in copper prices which offset concerns about another rise in official Chinese interest rates.
But they were not factors impacting on the LEI share price yesterday: the drive came from its corporatefile briefing last Friday.
The shares fell 66c to $30.49 in the wake of the release of the interview but obviously quite a few brokers worked on their models over the weekend and produced favourable client notes.
The interview was with LEI’s chief financial officer and deputy CEO, Deiter Adamsas.
He sent a clear signal that the company is still enjoying good business conditions, that margins are still strong and that the only constraint is the lack of skilled people here and in Asia.
The cost overruns on the PBL Melco casino in Macau won’t hurt Leighton. The company’s business in India and the Gulf region has risen more than sevenfold in a year from a combined $142 million of work to around $1 billion
And Leighton says it seems to be approaching the point here it will have to consider another significant acquisition as revenues nudge up against $12 billion a year.
So here’s some of Mr Adamsas’ selected comments:
On pre-tax margins which increased to 4.3 per cent, compared to 3.5 per cent in the first half of 2006 he said:
“We’ve had inherently good margins since before our write-downs in the second half of 2004. We’re now manifesting those inherent margins and believe these levels are sustainable in the current environment.”
Leighton said in its interim profit statement that it now expects earnings for the current year ending June 2007 to be up by about 45 per cent from the Group’s 2006 net profit of $276 million, implying net profit of about $400 million and revenue is expected to be about $12 billion. Mr Adamsas was asked where the second half growth would come from.
“The Group’s performed strongly all over. Mining and Resources has been strong, with the benefits of the HWE Mining acquisition coming through. HWE Mining is the major contract miner of iron ore in Australia and its performance has been very good.
“Leighton Properties also performed strongly and our civil engineering activities, on the back of a number of large infrastructure projects, were a major contributor.
“Generally, we’ve been able to sustain a higher level of activity than we forecast at the beginning of the year. At the same time, our work in hand has also gone up, which gives us the confidence to say we can sustain the higher levels of activity and higher levels of profitability in the current environment.
“Looking at the macro picture and at the major projects we see coming over the next 12 or so months, particularly in the engineering and mining areas in Australia, we’re confident we should be able to maintain a good level of work in hand, and therefore activity levels, in the current second half and into 2008.”
Another question asked was about the sharp rise in ‘new contracts, extensions and variations’ which totalled $9.6 billion in the first half, almost equal to the $10.2 billion total for all of the 2006 year to June 2006, and whether LEI could handle this surge.
Mr Adamsas said those new contracts “included a number of very major jobs.
“For example, the North- South Bypass Tunnel and Gateway Bridge Duplication projects in Brisbane, which will be executed over the next four or so years. They’re worth $2 billion and $1.4 billion respectively.
“The issue is what level of annual revenue the new contracts will translate into because that’s the operative number in terms of how many people we’ll need to do the work.
“We’ve been able to garner the people resources to get the company running at about $12 billion in revenue annually, but to take it significantly above that in the short term is a tough challenge unless we bought another company.
“Our balance sheet is robust to the nth degree and we can generate facilities to allow us to take on work way in excess of where we are. The financials aren’t the issue; the issue for us is people. That’s our only constraint at the moment.
“In our new markets in India and the Gulf, we’ve grown significantly. We’ve now got around $500 million of work in hand in India, up from $92 million in December 2005, and about $500 million in the Gulf, up from about $50 million.
“We’re already demonstrating that we’re able to undertake a significant amount of work in these markets, execute that work and achieve acceptable levels of profitability.
“We see great opportunities in India and the Gulf, but the issue is the same as in other parts of the Group – getting human resources to do the work.
“We’ve been able to attract some skilled people out of Australia, although that’s tough as there’s so much work here, as well as the UK, New Zealand, Canada and South Africa.
“In the Gulf we recruit labour from the Middle East, the Subcontinent and the Philippines; in India there’s plenty of unskilled labour available – the issue is attracting quality local skilled workers.”
On the cost overruns on the City of Dreams casino in Macau, Mr Adamsas said “Construction of the City of Dreams is being undertaken by a Leighton Asia (Northern)/John Holland led joint venture, of which we have a 70 per cent share. China State has the other 30 per cent.
“We’re undertaking the work under a contra
