The 2007 financial year is turning out to be a bonanza for shareholders in construction giant, Leighton Holdings.
For the second time in three months the company has boosted its earnings outlook for 2007 and 2008.
The latest upgrade in earnings has seen the shares push towards the $40 level.
That was after the shares rose through $20 and $30 on the back of numerous new contracts here and in Asia and the Middle East, sharply higher interim earnings and then some takeover speculation.
In fact the shares have more than doubled from under $18 at the time of the 2006 final profit announcement last August and yesterday when they traded as high as $40.26 before settling back around $39.40, up $1.50 on the day.
A tightly held float helps put a turbo under the share price: Hochtief AG of Germany owns 55 per cent of Leighton (which is in turn owned 25 per cent by the ACS construction group of Spain).
Apart from the small float, the reason for the rapid rise isn’t hard to see: Leighton has been riding the resources, infrastructure and construction booms here and throughout Asia.
The company earned $276 million after tax in 2006 and yesterday upgraded the 2007 figure to a rise of 55 per cent, and a further improvement in the following year. That would put net earnings around $427 million for 2007.
That’s above the forecast made when the interim profit was announced in February. Profit after tax jumped 61 per cent to just over $190 million for the half to December and LEI said that second half earnings would boost the full year by 45 per cent.
“The Group’s already high level of work in hand should be maintained at similar levels over the second half of the financial year, “directors said.
“Providing significant momentum, the work in hand is expected to produce strong levels of revenue for the period and full year revenue of approximately $12 billion.”
Yesterday’s statement made it clear that those conditions had continued.
Leighton said operating net profit for the nine months to March 31 jumped to $273 million (almost as much as earned in 2006), from $169 million in the same period last year.
Chief executive Wal King said the result for the nine months was a positive guide to a very strong performance for the full year and he now “expects full year net profit to be 55 per cent higher than the $276 million reported in fiscal 2006”.
“We continue to be pleased with the group’s operational performance with total revenue for the nine months of $8.6 billion compared to $7.1 billion last year and work in hand standing at $19 billion,” he said.
“The outlook remains very strong for all of our major markets, which are continuing to provide a good level of opportunities in construction, mining and services.
“These opportunities will support work on hand and we expect to report some $20 billion at 30 June,” Mr King said in the statement to the ASX detailing the nine month performance and the upgrade.”
He said LEI’s balance sheet remains very strong with cash of $619 million after making strategic acquisitions during the period.
Mr King said after decades of government underinvestment in roads, rail, water, electricity and telecommunications, a sustained catch-up spend is required.
“We see this in the current planning for engineering projects,” he said.
“Ageing infrastructure, a growing population, a resources boom and issues such as the drought, support a positive long term outlook for infrastructure spending.”
Mr King also said Asia was forecast to grow strongly going forward in the construction and mining areas.
“Asia is forecast to continue growing strongly and the Group is leveraged both directly undertaking mining and construction work across the region – and indirectly – providing services such as contract mining to companies selling commodities into Asia,” he said.
“However, the contribution from Asia will be substantially lower this year because of the poor performance of two process engineering projects in Indonesia.”
Leighton said its joint project in Macau was making good progress on project managing the $1.7 billion City of Dreams for the Melco/PBL joint venture while the Leighton Asia (Northern)/China State joint venture is finalising the contractual arrangements to expand the existing Wynn Resort and Casino with a second hotel.
“We are excited by the prospects in India and are seeing good opportunities in toll roads, airports, oil and gas, building and contract mining opportunities in the longer term,” Mr King said.
Mr King also said revenue for the full year is forecast to be about $12 billion, which is what was forecast in February and in another update from the company about six weeks ago.
