Leighton Holdings (LEI) Recent Update

Submitted by Jim Thesiger on 20 May, 2008 - 15:59

Leighton Holdings (LEI). MRE retained their outperform recommendation on the stock and have upgraded their 12 month price target on the stock to $60.09 (previously $54.76).

LEI – The Missing Link

In addition to Leighton Holdings (LEI) recent project win for the $US720m pipeline in India, the BrisConnections consortium has been awarded the tender for the Brisbane Airport link. The contract size is $4.8bn, encompassing the Northern Busway, Airport flyover and land costs, and represents a positive domestic foundation for revenue over the medium term. Macquarie Research Equities (MRE) highlights the key components of the deal and the implications for the growth of LEI…

Implications of the Win:

  • Provides a Strong Domestic Business base for LEI – the deal underwrites a positive flow of revenue over the medium term. Also represents a positive win for Thiess;
  • Airport Link increases LEI’s revenue growth outlook to 15% - MRE now deliberate a CAGR of 14.8% against LEI’s 10% growth guidance
  • LEI’s profit recognition strategy is to book 20% profits on a job once the 20% revenue threshold is met – Given that the Airport link is unlikely to achieve 20% of revenues by the end of FY09, operational upside is thus more likely in FY10.
  • Al Habtoor is Key Catalyst for FY09 Profit Swing – the AL Habtoor JV is trading ahead of schedule and thus providing stimulus for a positive result in FY09. MRE emphasise that the real impetus for continued revenue growth for the firm will be the amortisation costs in FY10.
  • Earnings Revision

    MRE have upgraded their earnings as follows: FY09, FY10 and FY11 EPS increased by 2%, 4% and 6%

    Recommendation

    MRE retain their outperform recommendation on the stock and have upgraded their 12 month price target on the stock to $60.09 (previously $54.76).

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