5 reasons Leighton Holdings shares might be cheap at today's prices

Business changes may signal a company revival.

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Construction and engineering company Leighton Holdings Limited (ASX: LEI) is taking a long, cold look at its business to see how it can change itself. It may be a good time for investors to look as well.

A restructured board under the leadership of newly appointed CEO Marcelino Fernandez Verdez has the task of turning the company around. In the last two years, its stock has risen about 11.8% versus the 37% gain of the S&P ASX 100 Index (ASX: ^XTO).

Here are five reasons why it could do it. If successful, the stock should deliver good returns from buying at a low point in the business cycle.

1)  New work in non-mining sectors

The company is offsetting the mining pullback in new projects with more contracts from the energy sector. It is working at all major LNG projects in Australia, with a new $1.8 billion contract connected with the QCLNG project in Queensland coming in the past year.

 2)  Business restructure

Management is proposing to redesign the business segments of its subsidiaries, John Holland, Theiss and Leighton Contractors so that they are not competing for the same contracts. The divisions will be divided by specialisation in contract mining, and another for infrastructure and civil engineering.

That will save on time and money in the preparation and winning of contracts.

 3)  Bringing debt down

It paid down its debt to a more manageable 29% net gearing, selling non-core telecommunications assets to help fund this.

The big task is to tackle the huge amount of money it is owed for work to really strengthen the balance sheet. That is one reason why Leighton Holdings' biggest shareholder, Germany-based Hochtief, increased its shareholding to take more control of the board and company's direction.

 4)  Growth in Asia

Urbanisation and modernisation in Asia will drive construction jobs. The company has new work contracts for road, tunnel and building projects in places like Hong Kong and the Philippines to make up for the decline in mining work in Australia.

 5) $50 billion Federal infrastructure funds

The Federal government's new budget has outlined the need for more infrastructure projects to kick-start the economy. Altogether it is proposing about $50 billion in funds over the next six years. State and private sector contributions to that could raise the final total to over $100 billion.

Leighton Holdings could profit from this funding since it could win a number of contracts for roads, rail, tunnels and other infrastructure work. This could also offset the weak mining industry.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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