Lendlease – FY20 Review

Lendlease LLC reported FY20 NPAT of -$310m. The sale of the engineering business unit to Acciona is expected to complete soon with a sale of $160m, lower than the original $180m announced.

Lendlease is facing subdued trading conditions as the company navigates the effects of COVID-19, with development, investment, and construction income all down over 50% for the June period.

Despite short-term uncertainty, the long-term value remains attractive and the company’s strong balance sheet should provide it with resilience.

Lendlease – Gearing Falls

Lendlease announced a raising of up to $1.15bn  $9.80 per share.

The equity raising comprises a fully underwritten $950m institutional placement, along with up to $200m via a non-underwritten SPP.  With the proceeds from the placement, liquidity will increase to $4bn and company gearing will fall to 10-15%, (assuming completion of the sale of the Engineering business).

A correction in commercial real estate will provide new opportunities for Lendlease but will also ensure a tough operating environment in the near-term.


Lendlease – Long-Term Value

Lendlease looks attractive from a long-term valuation basis, especially relative to other opportunities within the real estate sector.

Although the share price may remain weak until a solution for Engineering &
Services is achieved, we feel the negatives are already priced in.

Based on FY20 earnings, we have the stock trading on a forward yield of 5%.


Lendlease – 1H19 Earnings

Lendlease released 1H19 earnings last week and the initial reaction from the market has been negative, with the share price moving lower.

The company indicated the Australian Engineering business is non-core, which suggests we will soon see a trade sale of some description.

In FY20 we see a normalization of the Lendlease business, following the cost overruns in the FY19 results. FY20 we see revenue at $13bn and EBIT at $1.2bn.

FY20 yield is running at 4.8%. Value is emerging, watch the shot-term indicators for a positive reversal.


Lendlease – 25th Feb Key Date

Lendlease is a current holding in our ASX 100 model portfolio.

The market has discounted LLC share price due to substantial impairments on troubled projects within their engineering business.

The group reports earnings on the 25th of Feb and we expect to hear whether an exit of this business is likely.  Investors have lost patience regarding a turnaround and a trade sale or spin-off of the division will be well received by the market.

If confidence is restored and investors can look through the short-term troubles, LLC could re-rate back towards $15.00