US Military Selldown
ASSET SELLDOWN AND SEGMENT UPDATE
Need To Know
- Further 21% of US military asset sold for A$126m
- ROIC Updates: Investments upgraded, developments downgraded and construction re-affirmed
- Australian residential conditions have deteriorated, with slowing in transactions and settlements
- Gearing expected to stay within 10-20% target range and completions remain on course for FY24 target
Lendlease announced it sold a further 21% of its US military housing asset for a cash consideration of A$126m. LLC has now sold a cumulative 62% of its interest in US military housing since FY22. The sale is expected to contribute ~A$75m to FY23 operating profit after tax.
As a result of the transaction:
- Investments segments FY23 target for Return on Invested Capital (ROIC) is expected to be at the higher end of the 6-7.5% range.
- Development segments ROIC target was downgraded from 4-6% to 2.5-3.25%.
- Construction segments FY23 EBITDA margin was re-affirmed at the lower end of previously stated 1.5-2.5% due to inflationary headwinds.
Balance sheet is expected to remain in a sound position with LLC re-affirming its FY23 gearing forecast to be within the target range of 20-30%.
Completions are on track to meet the groups A$8bn FY24 target and ROE is expected to be at the lower end of the 8-10% target range.
Investment View
The sell down is a one-off benefit for FY23, providing a minor offset to development headwinds. We view this as an insignificant change to the overall performance of the group and believe the market will place a greater focus on the re-iteration of the FY24 completions and ROE targets. LLC continues to move forward with its goal to find for ways to re-deploy capital into higher growth opportunities.
We expect the selldown will provide some padding to the balance sheet. We would like to see further divestments to support the balance sheet and lower financial leverage. This a precondition for a re-rate in the share price in our view.
The stock appears cheap on a multiple basis, trading on a PER of 10x (1 SD discount to its long-term average) and a P/NTA of 0.8x. Whilst this is the case, we expect the market will want greater insight into the completions pipeline as well as capital capability before the stock sees a substantial re-rate. We rate LLC a Hold.
Stock Overview
Share Price
Company Overview
LLC is an Australian firm that develops mixed-use areas, suburban communities, and retirement villages, manages construction projects, and invests in residential, office, retail, industrial.
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