Leighton vs. Fairfax Media

Leighton Holdings (ASX: LEI) has been in and out of Fairfax Media’s (ASX: FXJ) numerous publications regarding allegations of cover-ups, bribery and misconduct that stems back to Iraqi projects in 2011. Finally the construction giant has had enough.

In the latest fiery exchange over what Leighton describes as “inaccurate and unbalanced” information, Fairfax’s The Sydney Morning Herald yesterday claimed a 45% Middle Eastern investment in the Habtor Leighton Group (HLG) was a drainer on earnings and said “shareholders deserved an explanation for the huge losses.” The title of the article was, “Leighton faces huge financial black hole in Middle East joint venture.” In a response, Leighton made a media release on the ASX yesterday and pointed out no less than 11 facts about the content provided in the Fairfax article, which showed it was wrong on a number of its findings. 

Since Fairfax published the allegations of bribery and misconduct by former senior Leighton management early in October, the share price has tumbled and ASIC announced it would investigate the company.

Leighton claims from October 3, 2013, Fairfax services, which include The Age, The Sydney Morning Herald, The Australian Financial Review and The Canberra Times, have published around 150 articles about Leighton. Since that time, Leighton shares are down over 17%.

Leighton says it has made contact with Fairfax on numerous occasions to discuss the facts of its articles but yesterday announced that it will consider “all avenues of redress against the journalists and Fairfax.”

My take

As a faithful shareholder in Leighton, perhaps I’m biased. Nevertheless here are the facts (as taken from a recent update from Leighton’s CEO, Hamish Tyrwhitt, on the media reports):

  • Leighton self-reported bribery allegations stemming from its Iraqi operations to the AFP.
  • Leighton has already pursued ex-employees for misconduct.
  • The “media campaign … is driven by alleged events on a single project out of the thousands Leighton has successfully completed to-date and the 400 plus” they are currently working on.
  • Leighton has turned over $135 billion of revenue since 2000, representing a compound growth rate of 17% per annum.
  • The company has operated in Australia for 80 years and in Asian and Middle Eastern markets for 40 years.

Foolish takeaway

Leighton’s shares dropped again as a result of the media reports and will open today at $16.01 – a world away from their $60 highs prior to the GFC. What’s particularly surprising is the company currently generates 85% higher revenues than it did at that time. In addition Leighton is also forecasting profit to be between $520 million and $600 million for the full-year – only 10% less than when the company traded at $63. I acknowledge that it does have higher debt levels today than it did pre-GFC but I don’t believe it justifies a share price of a quarter of what it was.

When I think I might sell my shares in Leighton I ask this question: Will the company still be around in 10 years? So far, from my research, I believe the answer is yes. In addition, earnings are expected to grow and the company is securing new contracts every day. I am sitting tight and could be tempted to buy more shares, at these rock-bottom prices.

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Motley Fool contributor Owen Raszkiewicz owns shares in Leighton Holdings. 

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