Lendlease: Interim result 2018
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Problems with ‘a small number of engineering projects' relating to work in Australia pushed Lendlease's Construction division to a $26m loss before interest, tax, depreciation and amortisation during the six months to December.
These projects represent 20% of its $5bn Engineering backlog but management believes the issues are limited to these projects. We'll have to wait and see whether this is true, although shareholders in Fletcher Building would be forgiven for being sceptical.
| Six months to Dec | 2017 | 2016 | /(–) (%) |
|---|---|---|---|
| Revenue ($m) | 8,691 | 7,945 | 9 |
| EBITDA ($m) | 721 | 640 | 13 |
| EBIT ($m) | 670 | 592 | 13 |
| NPAT ($m) | 426 | 395 | 8 |
| EPS ($) | 73 | 68 | 8 |
| Interim dividend of 34c, unfranked, up 3%, ex date past |
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The company justifies continuing to operate this business due to its integrated model: for example, Lendlease can potentially develop an office tower, construct it and then sell it into one of its managed funds in which it holds stakes.
Lendlease secured nearly $9bn in new construction work during the half and now has a backlog of over $22bn, up from $20.6bn at the end of 2017.
Elsewhere, things were much better.
The Development business increased its earnings before interest, tax, depreciation and amortisation (EBITDA) by 70% to $443m. Residential completions rose 48%, to 3,009 units, but are likely to be lower in the second half.
The company secured new urbanisation projects at High Road West, London ($1.9bn) and Milano Santa Giulia, Milan ($3.5bn) during the half. It's also the preferred bidder on an additional project in each of these two cities and now has a development pipeline of $57bn.
Rising commercial property prices and higher management fees led to a 33% rise in EBITDA in its Investments division, to $383m. The company now has funds under management (FUM) of $28.3bn, up from $26.1bn at the end of 2017, which includes US military housing, commercial office towers and retirement living communities.
FUM is due to rise by at least $4bn from developments being undertaken by its managed funds, while investments in US telecommunications towers and UK residential-for-rent assets will also add to FUM in due course.
Construction is a highly competitive, low-margin business and we can't predict commercial or residential property prices here or overseas. However, a diversified development pipeline and minimal net debt mean Lendlease is in better condition than Fletcher Building to withstand any unexpected setbacks. HOLD.
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