Lendlease released their FY21 earnings report to the market on the 16th August 2021, the group’s share price fell 5% on the announcement seemingly due to lower than expected apartment sales internationally. So we delve into the Lendlease Earnings Report 2021.
Lendlease Earnings Report Highlights
Lendlease reported a Statutory Profit after Tax of $222 million. This included a loss of $181 million for the Non-core segment, driven by additional provisioning relating to claims on historical engineering projects.
- Statutory Profit after Tax of $222m
- Core operating Profit after Tax of $377m, up 83%
- Full year distributions of 27 cents per share, payout ratio of 49%
- Final distribution of 12 cps
- Earnings Per Security of 54.8c, up 60% and Return on Equity of 5.4%
- Non core loss after tax of $181m, including additional provision of $168m (after tax)
Whilst the headline number of $377million Profit on the surface looks excellent, the group statutory profit was not as strong. This relates to the group’s decision to sell their engineering division to Spanish Contractor ACCIONA and resolving claims associated with legacy projects.
A key risk still persists with legacy projects as Lendlease is still liable for a number of troublesome projects such as the Melbourne Metro project. Whilst this is disappointing it is important to remember that once the engineering and services business has been excited the group’s earnings should become more predictable. The $181 million non-core segment loss accounts for a $168 million dollar provision related to legacy projects.
Lendlease clearly provides their key performance indicator for their performance as being directly linked to the group’s Return on Equity (ROE) and their Earnings per Share (Security) to measure the returns to shareholders.
In our opinion, the result was strong with Core Operative Profit Before Tax of $472million with Core EPS up 60% to 54.8cents per share.
The Group entered FY21 in a strong financial position with a healthy pipeline of work, cash, and cash equivalents of $1.7 billion, geared at 5.0 percent. The strength of the LLC balance sheet positions Lendlease strongly as they continue to navigate the COVID impacted the operating environment
We look forward to seeing future LLC results as the company looks to execute on its vertical integration strategy of Develop, Construct and Invest. A constant stream of revenue should be realized by the company especially with over $118 billion of developments in the pipeline.
Lendlease has a debt to equity ratio of 39%, with equity of $6.97 billion of assets and $2.35 billion of debt. The group has total equity as of FY21 of $1.78 billion, this is around 21% of the market capitalization.
As an international real estate group with a presence in targeted global gateway cities, the pandemic has had a significant impact across each of our markets and operating segments. Despite COVID impacts, profit recovered and the Group made significant strategic progress.Tony Lombardo – Global Chief Executive Officer
Lendlease Dividend FY21
The Lendlease Dividend for FY21 was announced to be 27cents per share, reflecting a payout ratio of 49%. This is at the mid-range of the companies guide of paying out between 40-60% of the earnings.
What Is the Lendlease Dividend FY21:
Lendlease will pay 27 cents per share to shareholders in FY21. This comprises an interim dividend of 15c and a final dividend of 12c per share.
What is the Lendlease Dividend Yield FY21:
The group’s dividend yield at current prices is 2.5%
Historically this year’s dividend is less than average and reflects the performance of the company during the period.
If LLC ASX can return to paying out dividends closer to the 12-year average of $0.47 per share, we would be looking at around a 4% dividend yield in the future at current prices.
Lendlease Share Price
The share price of Lendlease (LLC ASX) has dropped around ~4.58% since releasing their FY21 results.
In the year, shares are down -0.61%, compared to the ASX200 which is up 22.66%. If you include dividends for the year, LLC ASX has just crept into positive territory for the year.
|Lendlease Share Price||$11.45 per share|
|Lendlease Market Capitalisation||$8billion|
|Lendlease Dividend Yield||2.5%|
Lendlease Earnings 2021 – Prophets Take
The results announced by the group still seems to be hungover from the ghosts of the group’s Engineering division. However, as LLC completes the remaining projects we believe that earnings predictability should improve.
Going forwards, the group’s strategy should help to create a more reliable income stream, higher annuity earnings, Programmatic Investments, and a focus on operating income.
We see decent upside to the company should they be able to vertically integrate their Develop, Construct and Invest model. This is due to the group being able to construct higher-margin projects and get the first choice of investing directly into any of their developments. We can see higher margins in the future should the company be able to achieve this.
The result is very much in line with our Should I Buy Lendlease Shares back in June 2021.
At the current prices, we don’t see a massive opportunity in LLC. However, if the company can start achieving successful vertical integration of their model we could start to see higher profitability moving forwards.
Prophet will revisit Lendlease shares when the risk surrounding Melbourne Metro Subsides and growth in their city-building strategy can be seen as evidence.