Lendlease Group

LLC Details

Recent Updates: Lendlease Group (ASX: LLC) is involved in the investment, development and construction of infrastructure and properties. On 1st November 2021, it completed the sale of its Services Business to Service Stream for a total amount of $310 million.

FY21 Highlights:

• The group's total revenue decreased by ~23.3% Y-o-Y to $10,175 million in FY21 from $13,271 million in FY20. 
• The group reported a net profit of $222 million in FY21 as compared to the net losses of $310 million reported last year.
• The group provide a total of AU 27.0 cents dividend for FY21, including an interim dividend of AU 15.0 cents and a final dividend of AU 12.0 cents.
• It closed its FY21 with a cash balance of ~$1,662 million versus ~$1,111 million in FY20.

Revenue Highlight (Source: Analysis by Kalkine Group)

Key Risks: The company is vulnerable to the following risks:
• Cyclical Effect due to COVID-19 Impact and Omicron Variant: The group might face significant ramifications due to the global pandemic and might meet a low point in both the development production and profitability.
• Retrenchment of Government’s Relief Policies: There is uncertainty involved with the government's changing policies, which might act as a threat.

Outlook: The group entered FY22 on a robust note, with a gearing ratio of ~5% and lots of divestment agreements, including the service business sale. It is now focussing on other key areas and shall have a competitive edge. The group anticipates its core operating ROE to be in the range of ~8%-11% by FY24. The revised organisational structure would lead to a better and consistent operational model, which will lead to targeted cost savings of ~$160 million annually and is expected to be realised in 2HFY22. In addition, over $8 billion p.a production with ~10%-13% is expected as ROIC for FY24

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)


Analysis by Kalkine Group\

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last nine months, the stock has provided a negative return of ~20.06% and is trading below the average of its 52-weeks’ price level band of $10.08 and $13.8. The stock has been valued using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). After considering its decrease in quick ratio, lower ROE, the expected cyclical effect because of COVID-19, the company can trade at some discount to its peers. For the purpose of valuation, peers like Lifestyle Communities Ltd (ASX: LIC), Cedar Woods Properties Ltd (ASX: CWP), Servcorp Ltd (ASX: SRV), and others have been considered. Considering the company’s financial performance, improving debt-to-equity ratio, current trading levels, indicative upside in the valuation, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing market price of $10.52, down by ~2.140%, as on 15 December 2021.

LLC Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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