The share price of Lendlease Group (ASX: LLC) has been exploring new depths this month. Lendlease shares have lost another 9.55% and are valued at $5.21 apiece at the time of writing.
The property developer’s stock is hovering near year lows and trades at more than 60% below its value from 5 years ago.
Prestigious projects
Lendlease was once considered a global powerhouse in property development and urban regeneration. Now, the sustained weakness has left investors questioning whether the worst is finally over or if more pain lies ahead.
The real estate group designs, builds, and manages large commercial, residential, and infrastructure projects. Its fingerprints are on some of the world’s most prestigious precincts, such as Sydney’s Barangaroo and the Elephant & Castle redevelopment in London.
Turbulent UK exit
A series of earnings downgrades, budget blowouts, delayed project deliveries, and rising interest rates have battered the company, Lendlease shares, and investors’ sentiment.
Lendlease also made a costly and turbulent exit from the US and UK property markets. The real estate shares dropped more than 17% in early April this year on completion of the sale of its UK Construction business to Atlas Holdings. The reason for the fall, was that investors were starting to have increased doubts about Lendlease’s ambitions.
Investors slowly started buying back into the property developer’s shares after it officially signed a joint venture agreement with the Crown Estate in the UK in May. However, the disposal of assets and stalled developments have reduced stabile earnings, while restructuring costs continue to dampen profitability.
Cleaner balance sheet
Despite its troubles, the property and construction company still owns valuable assets and long-standing relationships with governments and institutional investors. And after years of restructuring, the balance sheet looks cleaner with more cash and fewer risk-heavy assets.
The company expects FY26 to be a transition year, as it will continue to simplify its business. It anticipates a lower earnings contribution from major project completions, but it plans for a sharp rebound in earnings from FY27.
Growing funds under management
Looking further ahead, Lendlease has a strong pipeline of new development opportunities, including $25 billion in bids and plans to secure over $10 billion in FY26. Progress in international funds management, ignited by new partnerships, is set to support growth in funds under management over the medium term.
Execution remains the biggest challenge. Multi-billion projects take years to complete, making profits lumpy and dependent on external market conditions. Rising construction costs, labour shortages, and bureaucracy continue to threaten Lendlease margins.
Reputational fatigue
Lendlease also battles with reputational fatigue. Many fund managers are tired to hear yet ‘another turnaround scenario’.
Analysts are also divided. Most acknowledge Lendlease shares look cheap, after such a severe sell-off. Some brokers do see upside from current levels, but the average 12-month target price of $5.80 sits modestly above today’s share price.
This suggests an 11% upside and implies cautious optimism, rather than conviction.
The post Are Lendlease shares a bargain after hitting fresh lows? appeared first on The Motley Fool Australia.
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Motley Fool contributor Marc Van Dinther has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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