Value.able: Leighton

12 Comments

1. 

   Matthew
   July 29, 2011 at 11:39 am:

   Hi Ash, I also really appreciate all your commentary. What sort of time frame do you think we are looking at for the new leasing standards to come into effect?

   • 

     Roger Montgomery
     July 29, 2011 at 11:41 pm:

     Hi Matthew and Ash

     You may remember this post on the subject: http://rogermontgomery.com/how-will-the-new-lease-accounting-standards-impact-my-view-of-retailers/

   • 

     Ash Little
     July 30, 2011 at 7:18 pm:

     Hey Mattew,

     I may be wrong but originally planned for 2012 but looks like this will push out to 2013…….2012 accounts will need to be restated though so I suspect some companies will at least have a note to the accounts on the effect.

     You can have a guess at the future effect on a company if you have a look at the operating leases section in the notes to accounts.

     As has been said here in the past this does not effect the economic performance of a business. This is just a different way to keep score.

     • 

       Michael
       August 1, 2011 at 10:38 pm:

       Hi Matthew/Ash,

       New leasing standard is not likely to be in until 2015.

2. 

   Jim
   July 29, 2011 at 8:57 am:

   Hi Roger

   Terrific article again-thanks. Having been an investor in Leighton’s from post-GFC until the rearing of the Al-Habtoor problems, the problem for me about this company now are what I would call macro-issues including Hochtief, ACS, leadership amongst others.

   The most recent is the ability to trust the company-from $480 million profit to $427 million loss and the capital raising in a very short time. It will take longer to consider investing in it than a rise of intrinsic value well above share price.

   • 

     Roger Montgomery
     July 29, 2011 at 11:39 pm:

     Thanks Jim for sharing and I agree with you.

   • 

     Chris L
     July 30, 2011 at 1:59 pm:

     I don’t yet have the skills to analyse things to the degree Ash or Roger do, and Ash’s comments about “off balance sheet funding” may well explain what I’m about to say. Leighton has a record of ups and downs, I don’t see this loss as any different to that. If you look back to 2003 and 2004 they were having problems (if I remember correctly with over-runs on Flinders Street Station (one of the inner city Melbourne stations anyway) and a large development in Sydney. Although on paper they didn’t lose money (eg NPAT) there was a dip –
     2002 2003 2004 2005
     EPS 60.8 49.7 39.1 72.9
     ROE 21.4 16.3 13.0 23.0
     NPAT 169 140 110 205

     The thing which makes me feel they did lose money then is this:

     2002 2003 2004 2005
     Shareholder’s Equity 789 856 844 893

     It fell in 2004 ie they lost money somewhere… but never mind, in the next few years they got it back in spades :)

     I’ve owned shares in the company since 2009, I sometimes regret that I didn’t buy more when they were really cheap (price wise) back in May 2004 – though I may not have if I had been using the Roger’s IV method as it was only about a half of the price in that year, on the data I had (2003) and around par looking forward to 2005. The growth in IV would have interested me though :)

     Summary of my point: LEI has ups and downs, but mostly ups historically. Unless that has fundamentally changed (and it did happen under Wal King, so I don’t consider that a fundamental change), I think stick to the long view.

     • 

       Roger Montgomery
       July 30, 2011 at 5:11 pm:

       Thanks Chris,

       In point of fact I can tell you that my 2004 valuation was $10.77 and the price traded between $8.97 and $11.94 (july 2004 to December 2004). Hope that clarifies. The value then rose to $26.96 and then $58.60 before collapsing.

     • 

       Paul Middleton
       August 1, 2011 at 2:59 pm:

       Good points Chris. I think the nature of the business is that from time to time work (and risk) will be inappropriately priced. The key here is to learn the lessons, and the two loss making contracts are BIG lessons to learn. I feel LEI have a competitive advantage in size and relationship with clients, the management team now need to knuckle down and start producing returns that are satisfactory.

     • 

       Roger Montgomery
       August 2, 2011 at 12:32 am:

       Complaints now about leighton taking photos of staff at the desal plant suggest someone wants to try everything to keep the gig going.

3. 

   Ash Little
   July 28, 2011 at 6:35 pm:

   Good article Roger,

   I consider myself very fortunate and thankful to you.

   After reading your book in August 2010 I decided that this company was expensive and more importantly not as good a quality of a business as I had first thought. Selling out and putting the funds into DTL has not hurt my hip pocket at all.

   The other thing to consider is LEI’s off balance sheet funding which will have to be taken onto the balance sheet when the new leasing standard comes into effect. I have looked at this and it is no small sum. It will be interesting to see the reaction when this occurs especially if it co-incides with another write down one it’s projects.

   • 

     Roger Montgomery
     July 28, 2011 at 11:39 pm:

     Thanks Ash. Good point. I really appreciate all the work you are doing here for so many investors.