Credit Suisse Downgraded Lendlease Stock To Neutral, Expects Lively AGM Ahead Surprise Write-Down

Lendlease shares tumbled over 15 percent after the company announced the write-down of $350 million on Friday, 9 November 2018.

Sydney-based developer said Lendlease intends to make a provision of $350 million after tax to account for further underperformance the company has witnessed in the financial position of its Engineering and Services Business.

The company said it will recognize these provisions in the first half of 2019, stating several reasons for underperformance including extremely wet weather, lower productivity in the post tunneling phases of NorthConnex, access issues and remedial work arising from defective design on other projects.

In the light of mitigating these anticipated losses, Lendlease told the company underway a comprehensive review of its Engineering and Services Business along with taking negotiations with third parties. “However, at this stage it is unclear as to the extent to which these negotiations will be successful to mitigate the underperformance.”

Lendlease Group Chief Executive Officer and Managing Director, Steve McCann said that this announcement on Engineering and Services Business is disappointing especially given the underlying performance across Lendlease’s other businesses.

But the sell off nearing to the company’s Annual General Meeting triggers the furious round of arguments between Lendlease’s executive and its shareholders. It seems Lendlease’s leaders may have to face the tough time in defending the sudden announcement of $350 million which has immediately pulled down the shares for three day in a row.

On the day of announcement, 9 November 2018, Lendlease’s shares plunged as much as 18.338% to close at $14.250. However, in the early trade today the LLC shares can be seen rebounding after the fall of three days straight. At the time of writing, 14 November 2018 (12:54 PM AEST), ASX: LLC share price has gone up by 1.022% or $0.130 to trade at $12.850.

Analyst Reaction

Following this announcement, analysts of Credit Suisse downgraded the LLC stock to neutral, thereby cutting their target price. They said now investors will be seeking for the Lendlease’s Board to commit to substantial change which could either be a significant change of strategy on engineering construction arm of Lendlease or a change in management.

Moreover, the analysts believe that the stock is oversold, and it may take no less than 6-12 months for the catalysts to restore confidence in the business.

The Annual General Meeting of Lendlease that is slated to be held on 16 November 2018 is likely to be lively underpinned by the recent extraordinary volatility of the shares, said Credit Suisse analysts.

In the concluding statement, analysts cited that according to their view there are internal succession options if Lendlease decides to exit from its engineering construction business, but the option for succession is less obvious if the company chooses to keep it.

In the past one year, LLC stock has fallen by 23.14% while in the last three months performance change, it stood at -30.83%. Currently, the stock of Lendlease Group (ASX:LLC) is trading at a PE of 9.280 x with market capitalization of $7.22 billion.

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