Leighton Holdings returns to profit, but remains a high risk investment

Leighton Holdings Limited shares jump as the company returns to profit. The shares look cheap, but are one of the risker S&P/ASX 200 companies.

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published January 16, 2012 10:47 am AEDT

Leighton Holdings Limited (ASX: LEI) shares jump as the company returns to profit. The shares look cheap, but are one of the risker S&P/ASX 200 companies.

What: Leighton Holdings Limited announced on 16 January 2012 that it expects reported net profit after tax for the six months to December 2011, to be $340m. This figure includes a capital gain of $179m from the HWE Mining iron ore sale, offset by non-cash impairments on investments in BrisConnections ($49m) and the Habtoor Leighton Group ($50m).

The company also confirmed its previous guidance for the 12 month period to Jun 2012 of underlying (excluding abnormal items mentioned above) net profit after tax of between $600m-$650m. NOTE: Leighton's advised in 2011 that they would be changing to a December financial year end, the first of which will commence on 1^st January 2012.

So What: This is a turn-around from the 2011 full year result when Leightons announced a $409m loss due to an expected $520m loss at completion on the Airport Link PPP project in Queensland, an expected $278m loss at completion on the Victorian Desalination Plant Project, a $100m loss in Leighton Properties and $492m in operating losses and impairments at their 45% owned associate Habtoor Leighton Group in the Middle East.

The share price is up 70 cents, (3.4%) so far in trading to $21.23.

Now What: A return to profit for 2012 is a good sign for the company. Leighton's is a cyclical company and see-sawing between losses and profits can occur, depending on conditions, and 2011 was the first full year loss Leighton's have reported in 13 years.

Shares are currently trading on a 12 month forward PE of 10.4, with an expected dividend yield of around 6% (based on 65% payout rate). On those statistics, the company looks cheap, but for a blue chip company, Leighton's is a relatively high risk investment, and deserves more in-depth research before investing.

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Motley Fool contributor Mike King owns shares in Leightons. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool's disclosure policy.

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