Lendlease Earnings: Subdued Market Conditions Delay Anticipated Recovery Further; Fair Value Down 8%

Lendlease reported core business operating profit after tax of AUD 61 million for the first half of fiscal 2024, down 42% from the same period last year, reflecting tougher real estate market conditions with slower activity and lower property valuations. Management expects core operating earnings to improve, and our expectation of a second-half skew in development completions underpins our full-year estimate of AUD 257 million in operating profit after tax. We reduce our fair value estimate for no-moat Lendlease by 8% to AUD 13.30 per security given the near-term headwinds in development. The security currently trades at a 51% discount to our fair value estimate. The market is likely losing patience with Lendlease’s recovery; however, assuming a better second half, we think the group is still moving in the right direction, even though the pace of the turnaround is disappointing.