Lendlease managing to get out an operating result inline with street estimates. The UK provisioning story is just very on brand for LLC. As always, they manage to give you glimpses of what is possible if the company can execute.

You can see the $105m actual UNPAT number (above, called Operating Profit After Tax) matching the forecast $102m below (Net Income Adj+); same with EPS adjusted at 15c street, and 15.2 actual.

Note also the massive escalation in forecast earnings over the forward horizon (the blue bars, above, under the earnings trends). That’s why/what anyone who owns LLC shares is there for.

Funds under management, and investment management assets (on which they charge a fee) continue to grow, and those are high quality earnings on which you can put a decent multiple.

Just as important are the development earnings. COVID, the pandemic, supply chain issues, project delays, you name it, have resulted in a very low level of completions over the past few years (see graph below).

LLC think (and anyone who owns the shares hopes) they can double the work in progress completions.

Putting the two together and you get that very attractive looking blue bar earnings profile in the graph above, referenced earlier.

The share price is near multi-decade lows, and as such we’d suggest the expectations for LLC are pretty modest. The share price is saying they can’t achieve those earnings estimates.

Given that the pandemic impacts fade, supply chains normalise, and LLC is a builder with a good track record of building, we think those are good odds.

NB – the UK provisioning issue arose on the 30th Jan, requiring builders to extend the warranty for defects from 6yrs to 30yrs, which means some of LLC’s exposures going all the way back to 2005 impact the P&L in terms of likely/expected future expenses, hence the provisioning chart.

This is something of a “from deep left field”, impact, and although the total cost is not enormous, it is nonetheless frustrating to the thesis.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

Receive our investment insights

Something went wrong. Please check your entries and try again.