Lend Lease: Result 2013
Recommendation
Lend Lease reported a respectable full year result, with revenue increasing 6% to $12.2bn from a year earlier. Earnings before interest, tax, depreciation and amortisation increased 12% to $744m and net profit increased 10% to $552m. Earnings per share increased 9% to 96.3 cents and a final unfranked dividend of 20 cents was declared (ex date 5 Sep), down from 22 cents, bringing the annual total to 42 cents for an unfranked current dividend yield of 4.4%.
Lend Lease’s development division, the company’s largest by operating profit, posted a strong result with profit recovering 143% to $403m. Profits from this division are extremely lumpy, and were buoyed by strong apartment sales from the first two residential towers built as part of the iconic redevelopment of Sydney’s Barangaroo South. In Singapore Lend Lease sold its 25% stake in the Jem shopping and office complex for $189m, as we discussed on 18 Jun 13 (Avoid – $8.45), and the company sold its 51% stake in the Greenwich Peninsula Regeneration project in the UK for $156m.
Management expects it could be 2015 before it sells the company’s 30% stake in the Bluewater Shopping Centre in the UK, currently in the books at $900m, which will help fund new projects. The company boasts a massive $37.4bn pipeline of projects, including the recently announced $2.5bn redevelopment of the Sydney Convention Centre, but earnings will be lumpier than ever following the sale of reliable cash-producing assets like Bluewater.
Despite low interest rates, construction activity remains subdued. Profits from Lend Lease’s construction division, the company’s second largest by operating profit, fell 32% to $193m chiefly due to fewer projects and write-offs following the $5bn cost blow out on the National Broadband Network project. While we’re concerned about a slowing Australian economy as mining investment falls from 8.0% of GDP back to the long term average of 2%, or below, management remains bullish about the company’s prospects in the US and Australia.
Lend Lease looks attractive on a price-to-earnings ratio of 9.8, but we’d need a larger margin of safety before upgrading this highly capital intensive, low quality business. With the share price up 12% since 18June 13 (Avoid – $8.45), we’re sticking with AVOID.