Lendlease Group

LLC Details

Key Business and Financial Highlights: Lendlease Group (ASX: LLC) is an integrated infrastructure and property company with development, investment, and construction as its vital operating segments.

• Recalibrating the Cost Base: LLC targets annualized savings of over $160 million or above 20% of overhead base. The group’s downsizing activities predominantly includes 4,000 non-core FTE departures after the sale of Engineering and Services and realignment of capex spend. In addition, benefits from regional consistency, simplification and establishment of enterprise services shall add to cost-saving strategies.
• Scaling Investments: LLC incurred $5.1 billion in new partnerships to drive Funds Under Management (FUM) growth. Moreover, the company is exploring rapid growth in sub-sectors like Life sciences and Datacenters.
• Foundations for Development Pipeline: LLC secured $8.4 billion in new projects with a significant stake in Smithfield, Birmingham ($3.5 billion) and 1 Java Street, New York ($1.0 billion).

FY21 Financial Snapshot, Analysis by Kalkine Group

Key Risks

• Affordability Concerns over Real Estate Pricing: Residential Property Price Index has inclined significantly on a sequential basis which may magnify affordability issues and the potential buildup of a price bubble.
• Retrenchment of Government’s Relief Policies: The gradual retrenchment of government policies in support of the real estate sector may threaten fallout in real estate indicators.

Outlook

• Conversion of Secured Pipeline: In FY21, LLC held a pipeline of $114 billion at a capital of $4.4 billion. For FY22-23, LLC is focused on targeting over $16 billion commencements, which includes 14 projects across the globe with the commercial conversion of 5 projects in the period.
• Anticipated Return Target: By FY24, LLC expects to clock 10-13% Development ROIC with 32 projects and $100 billion in the pipeline. Near-term returns are subdued, with over 50% of portfolio conversion.
• New Projects Uptake: The new work secured stood at $8.8 billion, up from $7.5 billion PcP, with the public sector being a considerable contributor via defence and social infrastructure in Australia and social infrastructure in Europe.
• Improved Funds Under Management: LLC expects FUM of $38.6 billion with opportunities to double as the urbanization pipeline is delivered. It has assets under management of $28.5 billion with residential contributing $13.7 billion due to potential growth in rents.

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

Data Source: Refinitiv, Thomson Reuters, 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: The stock of LLC gave a negative return of ~15.183% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $10.370 - $14.890. The stock has been valued using the EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). However, the company might trade at some discount to its peers’ average EV/EBITDA multiple, considering the decline in core revenue, likely impact of restructuring and impairment charges on NPAT in FY22, and potential affordability concerns looming on a sequential incline in residential real estate prices. For valuation, a few peers like Sunland Group Ltd (ASX: SDG), PEXA Group Ltd (ASX: PXA), Cedar Woods Properties Ltd (ASX: CWP) have been considered. Considering improved operating performance, prudent debt levels, significant potential in the development and construction segment, and upside indicated by valuation, we give a “Speculative Buy” recommendation on the stock at the current market price of $10.650, as of 27 October 2021, at 02:34 PM (GMT+10), Sydney, Eastern Australia.

LLC Daily Technical Chart, Data Source: REFINITIV

Note: The purple line reflects the RSI (14-day period). The blue and green color lines show 21-Period SMA and 50-Period SMA, respectively. 

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

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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 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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