Company Overview - Lend Lease Group is an integrated international property and infrastructure company. The Company consists of Lend Lease Corporation Limited and its controlled entities, including Lend Lease Trust. Its segments include Property Development, Infrastructure Development, Construction and Investment Management. It is engaged in designing, developing, constructing, funding, owning, co-investing in, operating and managing property and infrastructure assets. The Property Development business involves the development of inner and outer urban developments, apartments, commercial offices, retail centers, healthcare facilities and retirement villages. The Infrastructure Development business arranges, manages and invests in public private partnership projects. The Construction business involves project management, building, engineering and construction services. The Investment Management business involves property and infrastructure investment management, property management and asset management.



LLC Dividend Details
 
Australian Property Development and Investment Management contribution drove the overall performance: Lend Lease Group (ASX: LLC) reported a profit after tax increase of 12% year over year (yoy) to A$353.8 million and a top line rise by 24.5% yoy to $7.34 billion in the first half of 2016, driven by the Australian Property Development and Investment Management businesses contributions. Proceeds from the sale of the Lend Lease’s 25% stake in One International Towers Sydney Trust coupled with forward sale of the two commercial buildings at The International Quarter as well as settlements of several residential built-form projects completions in Australia also contributed to the bottom line performance. Accordingly, Lend lease enhanced its operating cash flow to $200.7 million during the period as compared to negative operating cash of $497 million in the prior corresponding period (pcp). LLC delivered a Return on equity of 13.4% in line with its target range of 11% to 15%.
 


First half of 2016 performance (Source: Company Reports)
 
Strong core domestic performance offsetting the international pressure: As per the regional performance, the group’s Australian division’s EBITDA and Profit after tax rose by 37% yoy and 30% to $518.5 million and $386.0 million, respectively during the period driven by Property Development, Construction and Investment Management. Australia segment’s Residential pre sold revenue surged by 45% yoy to $3.7 billion while Residential settlements increased by 44% against pcp during the period. The division’s Funds under management rose by 28% yoy to $15.0 billion. Australian segment’s construction division’s EBITDA margins improved to 3.6% during the period against 0.4% as the group’s focus on operational performance as well as decrease in the overhead cost base has paid off. With regards to the international segment performance, Europe’s EBITDA slightly increased by 2% yoy to $81.1 million. But Europe’s profit after tax and Funds under management fell by 3% and 11%, respectively, to $73.2 million and $1.7 billion during the half year ended on December 2015. Even, EBITDA and profit after tax for Asia plunged 209% yoy and 253% yoy to $(31.6) million and $(29.3) million, respectively, on the back of loss incurred due to revaluation of its investments (at somerset) as well as the ongoing focus on the origination of new urban regeneration developments. But Funds under management improved by 39% yoy to $5.3 billion. Americas division EBITDA and profit after tax dropped 57% yoy and 10% yoy to $28.5 million and $33.4 million, respectively, in first half of 2016 impacted by the rising investments in the origination of Property Developments in the region coupled with decrease in Construction earnings due to less contribution from the military housing sector.
 


Australian division’s EBITDA performance (Source: Company Reports)
 
Building an outstanding Property Development pipeline: The Property Development segment delivered an outstanding performance during the period and reported a profit after tax of $250.8 million driven by residential apartment completions coupled with sale of commercial office buildings in domestic and Europe markets. LLC’s pipeline improved by 15% yoy to $46.6 billion in the first half of 2016 while EBITDA surged to $324.8 million. The group made a forward sale of their commercial office building at Darling Square to APPF Commercial and First State Super as well as delivered first two commercial buildings at The International Quarter. LLC finished nine apartment buildings in Australia and Europe and delivered 17 overall apartment buildings in conversion or delivery by first half of 2016. Accordingly, Lend Lease’s Residential settlements reported a strong performance which enhanced by 45% to 2,128 units. Moreover, Residential pre sales surged by 49% yoy to $ 5,387 million boosted by ongoing development of the residential apartment pipeline in Australia and the UK. Retirement living made a huge contribution to the overall rise in settlement units and average price during the six months ended on December 2015 period.
 


Urbanization is the major driving factor for LLC (Source: Company Reports)
 
Other Segment Highlights: Lend Lease Group’s Infrastructure Development segment’s profit after tax fell by $42.4 million to $28.3 million during the first half of 2016 while EBITDA dropped 55% yoy to $39.8 million. But, the group’s equity investments are continuing for the infrastructure projects in Australia and Europe which are nearing completion. Accordingly, the segment’s invested equity rose by 13% yoy to $362 million during the period. However, the Construction segment’s profit after tax fell by $8.6 million to $77.0 million in the first half of 2016 due to decreased contributions from the international business. On the other hand, the new work secured in the construction segment surged by 30% yoy to $6.1 billion driven by major projects across its regions, with Australia, Asia, Europe and the Americas contributing $3.7 billion, $0.1 billion, $0.6 billion and $1.7 billion, respectively. As per the Investment Management business segment highlights, Funds under management and Assets under management division increased by 3% and 1%, respectively during the period. The group raised over $1.2 billion of third party capital in the first half of 2016. But Investments division within Investment Management business fell by 3% yoy to $1,361.8 million during the period on the back of divestment of a share of its co-investments in Lend Lease One International Towers Sydney Trust and Lend Lease PFI/PPP Infrastructure Fund LP.

 

Performance by segment (Source: Company Reports)
 
Balance Sheet Highlights: LLC’s cash position fell by $180.1 million to $570 million during the period impacted by its investment into Property Development while Inventories improved by $535.4 million to $4,639.6 million, driven by rise in work in progress on the back of major ongoing development projects like Darling Square, Elephant & Castle and Toorak Park. Meanwhile, Investment properties rose $317.8 million during the period to $6,312.7 million due to capital expenditures as well as better valuations for the Retirement Living properties on a gross basis. Lend lease had a liquidity of over $1.6 billion by the end of the period.

 

Indicative net cash flow from major projects (Source: Company Reports)
 
Stock Performance: The shares of LLC plunged over 21.8% in the last one year (as of February 19, 2016) on the back of investor’s concerns over the global markets volatility impact on its domestic and International performance. On the other hand, LLC recovered over 10.46% in just last five days (as of February 19, 2016) as the group reported a strong first half of 2016 as well as developed a strong pipeline in its core as well as International markets. LLC built over $5.4 billion of pre-sold residential revenues during the first half of 2016 among its communities and apartments. Australian segment has a construction Backlog revenue of up to $10.8 billion during the period while the group intends to continue to focus on operating efficiency in the region. Construction backlog revenue in Europe surged 106% yoy to $1.6 billion in the first half and Pre sold revenues in the region delivered an increase of 59% yoy to $1.7 billion. Despite the poor performance in Asia, the region built a solid Property Development pipeline of $5.8 billion while Funds under management enhanced by 39% yoy to $5.3 billion during the period. Americas also has a Property Development pipeline of $3.4 billion. The region also built $1.7 billion (60% yoy rise against pcp) of new work Construction while Construction backlog revenue surged 19% yoy to $5.8 billion. Moreover, LLC is the preferred bidder for over $8 billion of new work which even comprises the delivery of its internal development pipeline. Meanwhile, the stock is trading at very cheaper valuations with a low P/E against its peers and has a reasonable dividend yield. Given such an attractive pipeline, we believe that LLC stock would be able to rally further despite short term fluctuations and accordingly give a “BUY” recommendation at the current price of  $13.35
 
 
LLC Daily Chart (Source: Thomson Reuters)

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