ASX:LLC
Lendlease Group
Investment Summary
The fund managers believe Lendlease Group represents a compelling investment opportunity due to a potential cyclical reversion in the development business as the property cycle recovers. In their opinion, Lendlease’s 4.4% ROIC over the past four years is substantially below the 10-13% historical target, indicating room for improvement. With the stock trading at approximately 0.75x last reported net tangible assets, the fund managers see this as Risk-Adjusted Value Latency. Additionally, they acknowledge significant potential for value creation in global real estate funds management, citing Lendlease’s strong market presence and capability in asset creation. They note recent management efforts to enhance focus and intentionality, particularly with plans to simplify the organisational structure and redirect capital towards the high-returning Australian development business. Overall, while the long-term execution remains uncertain, the investment proposition is primarily based on anticipated recovery in development returns.
Commentary From The Managers
Cooper Investors
30 June 2024
$5.63
- Cooper Investors recently added Lendlease (LLC) to the portfolio.
- The investment proposition is centred around a cyclical reversion in the development business.
- The broader property cycle is expected to recover from current lows.
- Lendlease's development business has generated a ~4.4% ROIC over the past four years.
- This ROIC is well below the 10-13% through-the-cycle target historically achieved.
- A pathway exists for development returns to revert to historical levels in the coming years.
- The stock is currently trading at ~0.75x last reported net tangible assets.
- This valuation aligns with the trough of ~0.8x experienced during the GFC.
- Cooper Investors believes this represents compelling Risk-Adjusted Value Latency.
- Significant value creation is also seen in global real estate funds management.
- Lendlease’s market presence, brand, and asset creation capability support this potential.
- Successful execution will require a greater focus and intentionality than historically displayed.
- Current management’s strategy update in May showed a positive step change in focus.
- Plans to simplify the organisational structure include a managed exit from international development and construction.
- Capital will be redeployed into the high-returning Australian development business and international investment management platform.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.