Lendlease Group’s Shares Plunged On ASX After The Further Underperformance Of Its Engineering And Services Business

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Lendlease Group (ASX: LLC)’s shares plunged by 19.026 percent after the company announced that it has identified further underperformance in the financial position of its Engineering and Services Business. According to the recent release, the company is planning to make a provision of A$350 million after tax for 1H FY19 to account for the further underperformance of its Engineering and Services business.

As per Company’s CEO Mr. Steve McCann, the underperformance in the financial position of its Engineering and Services Business is extremely disappointing particularly given the underlying performance across Lendlease’s other businesses. Company’s international pipeline of landmark urbanization projects, especially those in Europe has materially grown in the last 12 months. 

Lendlease Group is taking measures to mitigate the anticipated losses including negotiations with third parties. However, at this stage, it is not clear as to the extent to which these negotiations will be successful to mitigate the underperformance. Till now, the company has made a significant change to Engineering and Services business including strengthening the leadership with the appointment of Mr. Hans Dekker in May 2018 as the Group Head of Building and Engineering. Mr. Hans is identifying processes to reset and strengthen the operations in order to reduce the risk profile and evaluate alternatives to reduce the volatility of earnings in the business.

In FY 2018, the company delivered a solid result for securityholders with Profit after Tax of $792.8 million, which was up 5% on the prior year. Earnings per Security was 136.1 cents in FY 2018, up 5% on the last year with a Return on Equity of 12.7 percent. The EBITDA of the company increased by 4 percent to $1,244.8 million in FY 2018 compared to the last year. Group Services costs at the EBITDA level of $140.1 million were down by 9 percent on the prior year as the company continued to focus on prudent expense management. Depreciation and amortization of the company increased by 9 percent to $106.6 million in FY18, reflecting investment in technology and systems across the platform in recent years, and additional equipment related to increased engineering activity.

Net operating and investing cash flows of the company were $294.6 million in FY 2018. The Company continued to invest in the development pipeline during FY18, most notably across international urbanization projects. The development pipeline grew by 44 percent to $71.1 billion in FY18 compared to the last year. The company is expecting the urbanization projects in targeted international gateway cities to account for a larger proportion of earnings over coming years. As part of a disciplined approach to managing capital, in FY18 the Board of the company approved an on-market buyback of up to $500.0 million.

In the last six months, the share price of the company decreased by 3.86 percent as on 8 November 2018, traded at a PE level of 12.740x. LLC’s shares traded at $14.130 with a market capitalization of circa $9.9 billion as on 9 November 2018 (AEST 2:57 PM).


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