Lend Lease moves to shore up confidence
Lend Lease has moved to allay investor concerns with the issue of a formal profit guidance of between $540 million and $550 million for the full year, despite the weakness in the construction sector.
However the move did not have the desired effect on the stockmarket, with the shares marked down another 19¢ to $8.45, well below the $11.25 they were fetching as recently as May 14. About $1.6 billion has been wiped off the company's market capitalisation.
One broker said while Lend Lease was well managed, it was in a sector that was highly leveraged and reactive to small shifts in the economic cycle.
"Construction is capital intensive, with long-term projects, but a small happening can shut a site down for weeks," the broker said. "This is not helped by the weaker mining sector. While Lend Lease has a small exposure to that sector, it seems to be enough to raise concern among investors."
In a market update on Monday, Lend Lease chief executive Steve McCann said the "underlying construction markets in Australia, Europe, the Middle East and Africa have softened in the second half of the 2013 year, contributing to reduced earnings from the construction businesses in those regions".
The construction sector is the single biggest division for Lend Lease, contributing about 42 per cent of group earnings.
In a move to clarify the position, Mr McCann said on Tuesday that Lend Lease "confirms it is on track to deliver a solid result in line with market expectations for 2013 financial year". This could be in line with the "published Bloomberg median of $547 million" . For the year ending June 30, 2012, the net profit was $501 million.
Most brokers have maintained a buy recommendation on Lend Lease but that is based on forecast improvement in the 2014 financial year.
The warning on construction came as Mr McCann unveiled a restructure that would consolidate the Abigroup, Baulderstone, project management and construction and infrastructure services businesses. These were acquired through the Valemus takeover in 2011 from the German constructor Bilfinger Berger for $960 million.
Analysts at CIMB said Lend Lease's update reflected a composition change to its profit expectations.
"Prima facie, this is a deterioration in the operation of the business this year, but in our view it also highlights the likely drivers for the business and share price performance through 2015-2016 financial years, in particular," they said.
"We have made no change to our recommendation, although we see likely outperformance in the latter part of the 12-month period rather than the earlier part."
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free