We’ve written about Lendlease a few times, over the years.

Firstly, note their preferred segmental framing of core and non core not looking so hot here.


It reflects the exits of the plagued engineering business, which has caused about a billion bucks worth of losses, and the wind down of other servicing related segments.

The result has been a steady stream of losses that LLC would say are “one-offs”. But quite clearly that is a difficult-to-swallow premise after 10 years and 20 halves of continuous abnormals.


To say the earnings quality is low is putting it mildly.

On the positives, the gearing is sound, aided by the exit from the divisions causing the cash haemorrhage (engineering) and a sizeable cap raise.


Screens as cheap regressing p/b against various fundamentals, therein lies the opportunity.


Brokers still think it can grow. Plus a chunk of that is COVID normalisation, and growing off a lower base ex the divestments.


And the embedded expectations are very low (reminder, in logs, so losses are NAN’d out). If it can get earnings equivalent to the 36m NPAT forecast over the next decade, it should do quite well.


But it needs to convert that enormous pipeline growth into earnings at a good margin.


Something that it has historically struggled to do.


On the whole, Lendlease is not one for the fainthearted.

If they execute, there is material upside. If they don’t, it seems that there’s relatively minimal downside, as it is already priced for perennial disappointment.

With that sort of higher risk, yet still fairly asymmetric bet structure behind it, we do have LLC in our absolute return fund, which is a collection of higher risk higher return stocks, without the same degree of focus on quality companies as per our flagship Core Equity Portfolio.

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