Last Update 29 Mar 26
LLC: Index Reclassification And Upcoming Distribution Will Support Future Upside
Analysts have kept their A$ price target for Lendlease Group unchanged, with the steady fair value estimate around A$5.48 supported by consistent assumptions on discount rate, revenue growth, profit margin and future P/E.
What's in the News
- Lendlease Group was dropped from the S&P/ASX 100 Index, which may affect how some index and benchmark aware investors gain exposure to the stock (Key Developments).
- Lendlease Group was added to the S&P/ASX Small Ordinaries Index, placing it alongside a different peer set that some funds track for smaller cap exposure (Key Developments).
- Lendlease Group announced an ordinary unfranked distribution of A$0.06204589 per security for the six months ended December 31, 2025, with an ex date of February 27, 2026, a record date of March 2, 2026, and a payment date of March 18, 2026 (Key Developments).
Valuation Changes
- Fair Value: A$5.48 fair value estimate is unchanged, with no adjustment to the prior assessment.
- Discount Rate: The discount rate remains steady at 11.93%, indicating no change in the required return used in the model.
- Revenue Growth: Forecast revenue growth stays effectively unchanged at about 23.46%, with only a minor rounding difference in the updated figure.
- Net Profit Margin: Projected net profit margin remains stable at roughly 2.82%, with only an immaterial rounding adjustment.
- Future P/E: The future P/E assumption is maintained at about 16.38x, with no directional shift in the valuation multiple used.
Key Takeaways
- Cost reduction and divestment efforts may enhance net margins and focus on high-margin core operations.
- Growth through development ventures and increased funds under management could boost future revenue and earnings.
- High construction costs, project productivity issues, and divestment challenges threaten Lendlease's financial stability, with potential impacts on profit margins and cash flow.
Catalysts
About Lendlease Group- Operates as an integrated real estate and investment company in Australia, Asia, Europe, and the Americas.
- Lendlease's restructuring and cost reduction initiatives are expected to yield $125 million in cost savings by the end of FY '25, potentially improving net margins.
- Capital recycling efforts aim to raise $2.8 billion in FY '25, which could reduce debt and strengthen the balance sheet, positively impacting future earnings.
- The divestment of international construction operations is anticipated to be completed ahead of schedule, likely reducing risk and focusing on higher-margin core operations, which can enhance net margins.
- Lendlease's focus on development and investment management through joint ventures and new project launches positions it for growth, potentially increasing revenue and earnings.
- The group aims to grow funds under management with new mandates and development initiatives, expected to support revenue growth and increased earnings over the next few years.
Lendlease Group Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?
- Analysts are assuming Lendlease Group's revenue will grow by 23.5% annually over the next 3 years.
- Analysts assume that profit margins will increase from -2.3% today to 2.8% in 3 years time.
- Analysts expect earnings to reach A$321.1 million (and earnings per share of A$0.49) by about March 2029, up from -A$141.0 million today.
- In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 16.4x on those 2029 earnings, up from -16.2x today. This future PE is greater than the current PE for the AU Real Estate industry at 12.1x.
- Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 11.93%, as per the Simply Wall St company report.
Risks
What could happen that would invalidate this narrative?- Lendlease faces risks from high construction costs and productivity issues impacting specific projects, potentially leading to losses that could affect net margins and operating profits.
- The company's strategy to divest from international construction presents execution challenges, which if not managed well, could lead to financial shortfalls impacting their balance sheet and cash flows.
- There are uncertainties regarding Lendlease's ability to successfully complete and profit from key asset sales, such as TRX Retail and Ardor Gardens, which could impact cash flow and profit realization.
- The group's elevated gearing levels pose a risk, as failure to achieve target recycling of capital could strain their financials and impact interest and finance costs.
- Market-driven impairments, such as those witnessed at Victoria Cross, reflect vulnerabilities in asset valuations, which could negatively affect statutory profit and balance sheet strength.
Valuation
How have all the factors above been brought together to estimate a fair value?
- The analysts have a consensus price target of A$5.48 for Lendlease Group based on their expectations of its future earnings growth, profit margins and other risk factors.
- However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$6.5, and the most bearish reporting a price target of just A$4.42.
- In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be A$11.4 billion, earnings will come to A$321.1 million, and it would be trading on a PE ratio of 16.4x, assuming you use a discount rate of 11.9%.
- Given the current share price of A$3.35, the analyst price target of A$5.48 is 38.9% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
