Lendlease has been, by quite some margin, our worst call in direct equities.

I agree with the Tanarra PM here. We’ve written a lot of notes about LLC, and I don’t plan to relitigate the case from first principles here (feel free to search our blog though).

LLC’s free cash flow is abysmal as it acquires and funds developments, particularly as it ramps up from the pandemic pause, AND, given profits are only booked at the back end, thanks to the AASB 15 changes, both cashflow & NPAT outcomes have been awful.

BUT, when completions rise, earnings should lift materially.

Against that, completions will have to be done in an environment that is hostile to developers (permits/red-tape bureaucratic nightmares, inflation, higher rates, lower productivity, getting the right labour mix) and is likely to have to do so amidst a sea of bankruptcies.

“Last rat standing” is the new goal.

The opportunity is pretty enormous. And every portfolio needs a handful of deeply non-consensus calls, appropriately sized. LLC is ours. We’ll continue to hold.

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