drops just to my stop loss , page-16

I really do feel this will go lower, after spending time on the weekend to build a financial model for Leighton.

The main issue is LEI's slim Net profit margins which seem to be historically inherent in its business model, combined with fixed price, fixed time tendering for large scale construction projects (which as we know constitute 23% or the 46 billion work in hand).

NPM over the last 5 years has been as follows;

DH06 3.9%
JH07 5.2%
DH07 5.3%
JH08 6.5%
DH08 1.7%
JH09 4.9%
DH09 4.1%
JH10 4.3%
DH10 3.0%
JH11F -8%

Even before the recent downgrade the February update predicted a JH11 NPM of around 2.8%, so the problems of rising wage costs etc were becomming evident.

I would add that this is not an issue that is exclusive to LEI, but general across the construction sector, cost blowouts have become the norm, primarily due to competition in an increasingly constrained labour market.

LEI's business model and its low margins, combined with tendering practises that haven't sufficently absorbed risk, have lead to am almost predictable conclusion.

As far as valuation goes I believe the market will value LEI on 2012 forecasts. After having modeled this myself I can see that the management guidance of NPAT 600-650mm for the 2012FY is probably quite optimistic in terms of key profitability drivers returning to normal levels(Materials, Personnel, Subcontractors as a % of Revenue), as well as a heathly growth assumption in the topline.

Also I beleive there is at least the potential for a futher impairment in HLG, and ongoing market concern about LEI maitaining sufficent cash levels on the balance sheet to fund working capital requirements.

Allowing for the full dilution of the raisings and factoring 50m addditional impairment, I have LEI trading on a FY12 PE of 16. Which i feel is far too rich for a company experiencing the recent issues LEI is going through. Therefore I believe the market will over the next 6-9 months down rate LEI's SP further.