THE DISTILLERY: Lauding Leighton

Jotters give Leighton Holdings chairman Robert Humphris' AGM address a big tick, while some suggest the Australian dollar's above-parity run looks over.

Leighton Holdings chairman Robert Humphris left shareholders with a pretty good impression yesterday if the reaction from business commentators is anything to go by. The significance of reaffirming the company’s earnings guidance should not be underestimated, with the Leighton’s register tired of the negative surprises and the boardroom troubles. Humphris made good progress on both issues.

Fairfax’s Adele Ferguson says if Leighton pedals fast enough on the task of retrieving hundreds of millions from project underclaims from contract variations, it could meet the upper end of its reaffirmed guidance.

“Nevertheless, given the downturn in Australian mining and infrastructure it was a bold move by Humphris to maintain earnings guidance. Not to put too fine a point on it, shareholders would not tolerate another disappointment given the string of problems in the past couple of years. These include profit downgrades, two project disasters, an equity issue and more lately a class action. The reality is the bulk of Leighton’s revenue is generated out of Australia and even if it can boost revenue from Asia to $5 billion, it is a far cry from Australia’s massive contribution. Furthermore, Hong Kong and Indonesia are two of the few places in Asia where Leighton has consistently made money. Elsewhere has been sporadic.”

Nonetheless, The Australian Financial Review’s Chanticleer columnist, Michael Smith, believes that while it is “early days,” shareholders will have come away yesterday with some confidence that the board is in good hands with Humphris at the helm.

“In a speech seeking re-election to the Leighton board, Humphris told shareholders he once spent his working days shirtless, shovelling 14 tonnes of coal on to a conveyer belt back in his native Britain. The story was designed to illustrate that Humphris started his career literally at the coal face. He is not afraid of hard work and knows the resources industry inside out. To say he has some more heavy lifting ahead is an understatement. Humphris knows the chairman’s job at Leighton is a poisoned chalice.”

The Australian Financial Review’s Dominic White gives some sense of the tone at the AGM, which sounded positively genial and optimistic thanks to Humphris’ swagger.

“The avuncular former ‘ten pound Pom’, who’s kept his well-to-do English accent despite emigrating in 1970 and later taking citizenship, even joked with one shareholder that he hoped he’d be back next year, too. The 70-year-old scored points from another investor for his ‘gentlemanly conduct’ of the meeting, throughout which he was eyed closely by fellow director Marcelino Fernández Verdes, the Spanish chief executive of majority shareholder Hochtief.”

Meanwhile, the fixation with the Australian dollar continues. The Australian Financial Review’s Washington correspondent Ben Potter suggests that it might be a little early to bet the Federal Reserve is making any real movements towards pulling out of quantitative easing.

“The statement after the 30 April-1 May meeting said they could increase or decrease the $US85 billion monthly rate of bond purchases under QE3 depending on the economic data. That was a ‘be careful’ message to investors tempted to read the to-and-fro of Fed minutes as an increase in the likelihood that QE3’s horizon is shortening. Since that meeting several Fed governors have suggested this – either because of improving economic data, or because of the risks of encouraging too much risk-taking or ‘reaching for yield’ have grown to outweigh the benefits.”

Tomorrow we’ll get some more comments from Fed chair Ben Bernanke thanks to a scheduled testimony session at Congress and the minutes from the monetary policy committee’s last meeting

Business Spectator’s Stephen Bartholomeusz points out that it isn’t just the Fed’s machinations that influence the Australian dollar. China’s economy is pretty damn important too.

“With China’s economy appearing to be shifting into a slightly lower growth mode and the intensity of its consumption of commodities apparently dropping, one argument for buying the Australian dollar is weakening. Indirectly, because of the impact of lower commodity prices on resources investment – the China-inspired decline has effectively truncated the investment pipeline – the slower rate of growth in its economy will also reduce the capital inflows funding investment that have supported the dollar’s strength over the past two years.”

Bartholomeusz adds that unless the US economy stalls or the Chinese economy significantly strengthens, it’s difficult to see a scenario where the dollar will return to an above parity trading pattern.

Fairfax’s Elizabeth Knight says the retail industry’s budding sense of optimism has all but evaporated as the financial year draws to a close.

The Australian’s John Durie brings word from frustrated US District Court judge Jed Rakoff about the complete lack of court-imposed penalties for the culprits of the global financial crisis.

The Australian Financial Review’s Matthew Stevens recommends that anyone looking for some insight on the marginalisation of the Australian coal industry should read the latest thoughts from Deutsche Bank’s Paul Young.

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