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Lendlease (LLC) $6.46

LLC -13.98%: It was hard to find anything in today’s result that was a positive, other than perhaps this is as bad as it gets for the property company. 1H24 results  were a huge miss to expectations, with a core operating profit after tax of $61m, down -42% YoY and ~70% below consensus. While this is clearly a poor 6-months, we don’t think it’s the reason for the share price weakness given the period was always going to be a tough one. The outlook is more the concern as they lowered return on equity (ROE) guidance for the full year down from 8-10% to 7%. The market was at the lower end of the prior range, so assuming a drop from 8% to 7% ROE, that equates to around a 20% downgrade to full-year earnings and this is what the shares are being priced on today. The post-result call was an interesting one, with lots of specific questioning around what had changed from 18th December when they reconfirmed guidance to now. They essentially blamed timing as transactions take longer, which has implications across their book, probability scenarios changing etc, the standard set of excuses.

  • When they released their FY23 result in August we said at the time, our takeaway from the call is there are still some risks in executing this transition, particularly given the challenging operating environment where confidence remains low as uncertainty around inflation and interest rates persist. This has unfortunately proven to be the case.

The decline in share price today is ‘about right’ given the downgrade to FY guidance, the only potential silver lining here is it seemed like they were being conservative around the timing of deals completing and therefore how this would impact ROE, and thus earnings. In any case, it was clear that many are losing patience with the LLC turnaround, predicated on becoming an ‘investment-led’ business, a dollar every time they said that on the call today would go a long way to offset our losses!

  • Today’s results are a miss and a downgrade, two things that we don’t want to see. While we are frustrated with our position, and now down ~12%, we are likely to show some patience, for now at least.
MM is now evaluating our position in LLC
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Lendlease (LLC)
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