Lendlease Group Reported 88% Fall In EBITDA - Share Price Tumbled By 6.4%

Lendlease Group (ASX:LLC) is a company from the real estate sector which is engaged in retail property management, asset management and development. It operates in Europe; Asia Pacific and the Americas regions. Today (25 February 2019), the company announced its half-yearly results of FY2019 for the period ended 31 December 2018.

During the period, the overall result of the Group got impacted through the cumulative issues in many engineering projects. Mr Steve McCann who is the CEO and Managing Director of Lendlease Group expressed his disappointment with the half-yearly results, and he said that the company is committed to restoring security holder value and confidence in Lendlease.

A review on the Engineering and Services involved that the segment is the non-core business of the company and no longer a required part of the Group’s business strategy. The review also concluded that both Engineering and Services business and Lendlease Group to focus towards their core competitive advantages which will be in the best interests of the clients, employees and security holders. The review also stressed on the attractiveness of the Australian transport engineering where the Federal and state government work is streamlined to deliver a growth of approximately five per cent per annum during the next five years.

Mr McCann said that allowing the Engineering and Services to participate in the transport engineering sector will improve the operational improvements and will also develop a strong focus on alliance style partnerships where risk is more appropriately shared with project partners. In case the decision gets implemented, the company expects a further $450 million and $550 million pre-tax restructuring costs which will include technology and systems costs, employee costs and advisory costs, and costs to conclude customer contracts as a result of the Group’s decision.

In spite of a challenging period, the Group was able to convert the origination opportunities in global gateway cities. The Group is continuously stepping towards the development pipeline and is taking steps to successfully execute the key initiatives with the capital partners.

During the period, two new major urbanization projects were added to the Group’s pipeline. These were Victoria Cross in Sydney and Lakeshore East in Chicago. These projects combined estimated end development value is above $3 billion. The group has been considered as preferred partner by London Thamesmead Waterfront project worth $14.5 billion and Birmingham Smithfield project worth $2.7 billion.

The Group had also taken Capital partnership initiatives where it entered into US residential investment 50:50 partnership with First State Super with $1 billion equity committment. It also rebalanced the investment in Tower One, Barangaroo from 12.5% to 2.5% as well as completed three office towers at Paya Lebar Quarter, Singapore. The completion of three office towers at Paya Lebar Quarter, Singapore was in partnership with ADIA (70%) with $2.1 billion of office FUM.

 The fund under management went up by 20% to $34.1 billion. However, its construction segment got impacted by expected losses on underperforming Engineering projects worth $500 million. On the other hand, the building business delivered solid results in each region.

Financial performance: By the end of the FY2018, for the period ended 31 December 2018, the company made a NPAT of $15.7 million (down by 96%). The EPS stood at 2.8 cents, with a major decline of 96% as compared to PCP. The company declared an interim dividend of 12 cents per stapled security. The Group EBITDA declined 88% from $720.6million in HY18 to $83.1 million in HY19.

The development pipeline during the period went up by 31% to $74.5 billion.

In the last six months, the stock has generated a negative return of 29.89%. However, the stock has generated a decent positive YTD return of 27.72%. By the closure of the trading session on 25 February 2019, the closing price of the stock was A$13.280, down by 6.413% as compared to its previous trading day’s closing price. The company has a market capitalization of A$7.83 billion with 563.85 million outstanding shares with a PE ratio 10.360x.

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