We reaffirm our Sell recommendation of Leighton Holdings Ltd (LEI)

We reaffirm our Sell recommendation of Leighton Holdings Ltd (LEI). LEI 1H14 underlying NPAT of $319million was ahead of our expectations but the operating cash flow performance was disappointing due to a sharp rise in working capital investment associated with unresolved underclaims on major projects. Core earnings risks remain material in our view. We cannot rule out the possibility of material debtor impairment in the near term or a more material decline in both revenue and EBIT if the heralded infrastructure pipeline fails to materialise in time to assist earnings. With an expected return of -7%, our recommendation remains Sell.