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.

• 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).
• Financial Position: Gearing stood at 5.0%, down from 5.7% PcP due to proceeds from strategic divestments, net development receipts, and transfer of working capital associated with Engineering sales. Interest coverage stood at 6.4x and Average debt cost at 3.6%.
• Cash Position: The company reported $1,662 million of cash balance as on 30 June 2021 relative to $1,111 million as on 30 June 2020. Significant uptick was primarily driven by improved operating cash flows, partially offset by reduced proceeds from borrowing.

FY21 Key Highlights, Analysis by Kalkine Group

Key Risks

• Threat from Climate Changes: Climate change significantly impacts real estate and infrastructure development, which further challenges property valuation.
• 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

• Future Indicators of Production: The development segment commenced a $5.6 billion pipeline with significant work in progress (WIP) composition of $5.9 billion in apartments for sale and $6.9 billion in commercial projects. LLC expects to reach $8 billion in production targets by FY24.
• 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. Assets under management of $28.5 billion with residential contributing $13.7 billion due to potential growth in rents.
• LLC is set to hold an annual general meeting virtually on 12 November 2021.

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

Source: 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 ~10.7% 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). The company might trade at some discount to its peers’ average EV/EBITDA multiple, considering decline in core top-line, likely impact of restructuring and impairment charges on NPAT in FY22, and the impact of containment measures on development segment. For this purpose of valuation, few peers like Lifestyle Communities Ltd (ASX: LIC), PEXA Group Ltd (ASX: PXA), Cedar Woods Properties Ltd (ASX: CWP) and other have been considered. Considering improved operating performance, prudent debt levels, significant potential in the development and construction segment, upside indicated by valuation, current trading levels, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $10.850, as of 13 October 2021.

Investors with high-risk appetite should evaluate this stock in view of the technical support and resistance levels as well as taking into consideration associated risks of COVID-19 impact, forex headwinds, retrenchment of relief policies and interest rate movements.

LLC Daily Technical Chart, Data Source: REFINITIV

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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