Leighton
Recommendation
Success in the construction industry is a function of sound process as much as favourable conditions. It’s a lesson Leighton Holdings has learnt firsthand over the past few years. After colossal losses on two flagship projects—Airport Link in Brisbane and the Victorian desalination plant—the company is carefully reviewing its risk management and tendering processes.
Chief executive Hamish Tyrwhitt has concluded the company became too cavalier under previous chief Wal King; chasing growth at any cost. He plans redemption by engendering a new respect for risk management, commanding more control of project decisions and more narrowly defining the abilities and objectives of each business group. Leighton will no longer be a group of independent companies free to do as they wish.
Re-assess | Below $16.00 |
Avoid | Above $16.00 |
Some progress is being made, and new projects continue to be won but turning around this business will take time. Achieving the company’s revised guidance of $400m-$450m ($1.19-$1.34 per share) will still prove difficult. Leighton’s share price, however, is starting to reflect these risks having fallen 25% since 29 Mar 12 (Avoid – $22.16), although it’s still a tad too expensive to warrant further investigation. For now we’re sticking with AVOID.