Lendlease never fails to disappoint.

“Earnings will grow”, but for now “at the lower end of guidance, near term”.

This is a familiar story, to Lendlease holders.

Sadly, the excuses outlined in today’s strategy briefing have weight (e.g. project deferrals, approval delays, impacting execution and thus profits) are all fairly reasonable, despite being frustrating, and will likely lead to lower forecast NPAT numbers.

We got interested in LLC when we took the view that revenues and earnings had troughed. The pandemics’ impact on projects, and project execution, would fade, things would get back to normal, and the below graph seemed to bear that “trough” view out.

Similarly EBITDA measures. You can see that earnings, even after bouncing at that last half, are still well down on pre-pandemic levels.

And that all LLC would have to do is execute on the enormous pipeline of work to do.

LLC’s competitive advantage is a mix of mutually reinforcing network contacts (convincing people to help them fund projects, or alternatively select/award them for projects) and execution (technical excellence at delivering these large urban renewal programs).

None of that goes away, and it is the reason they’ve got this sizeable development book to get through. LLC knows current completion rates are grossly inadequate (a couple billion $ per year would mean many, many years to get through the work), and they are targeting a trebling in the completion rate (to $6bn), which would drive profits up quite materially.

If the completed work then attracts management fees, the whole “flywheel” effect would be quite lucrative.

The Goodman Group (global best in class sort-of-close-comparable peer) update showed a somewhat similar slowdown, with the most recent quarters’ run rate of completions looking pretty lacklustre. It is an industry wide issue, and the widening cap rates, and inflationary pressures, will make for a challenging backdrop overall.

So, although we still think the opportunity is very compelling, and that urban regeneration as a thematic (including the focus on mixed use precincts (“reimagining how we live” type-stuff) and the focus on green-highly-renewable-efficient-centric buildings) has decades of growth tailwinds behind it, we will likely have to wait.

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