Is Lendlease (ASX:LLC) out of the doldrums for good?

Lendlease (ASX:LLC) has for the past several years been the classic definition of a ‘value trap’.

You think a good company is trading at a bargain price due to a ‘temporary setback’, but the setback turns out to be a lot more than temporary or just the tip of the iceberg.

If you bought Lendlease in the 2nd half of 2019 and held since then, your shares would now only be worth a third of what they were back then. But the past is the past. The question now is: When will things get better? Short answer: The next couple of years could be better, but the company will be a shadow of its former self.

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Introduction to Lendlease and how it got itself into a mess

Lendlease is a real estate company that has been both an investor and a builder of properties. What types, you ask? Just about anything – residential developments, office skyscrapers, other commercial assets, social infrastructure, defence infrastructure…you name it, Lendlease has probably been in that space since its 1958 founding.

There are varying degrees of profitability amongst real estate projects and no two sectors can have the same outlook. But they all have significant upfront costs in any economic times. The accounting is complex too – even if the company demands cash upfront for future owners, it may not be able to be recognised from an accounting standpoint until later on. And the bout of post-COVID inflation hit the construction sector amongst the worst of any sector.

The company all but admitted that it did not have sufficient risk assessment and due diligence procedures on its projects in years gone by. Take it from the board itself, the fact that new procedures were announced in May 2024 as part of a simplification strategy all but confirmed this. It also exited over $4bn worth of unprofitable international projects, as well as its entire master-planned communities business, promising to use proceeds to pay down debt and return capital to shareholders. Public demands from activist investors, most prominently Tanarra Capital’s John Wylie, didn’t give the best look for prospective investors.

A different future, but potentially a better one

So it is clear Lendlease no longer wants to be a major global player and is content with being a major Australian player. But where to next? It would seem building apartments for wealthy Baby Boomers downsizing. Just look at one of its most recent property proposals.

Lendlease bought 1 Darling Point Road at Edgecliff (in Sydney’s Eastern Suburbs) for $132.5m and wants to build a $500m 17-story residential tower on that site. This is being done in a Joint Venture with Mitsubishi’s real estate arm and it is not the first time Lendlease has partnered with them. Amongst other projects is its Residences Two tower at One Sydney Harbour. The company flagged in its 1H25 results that it’d get a $118m EBITDA boost from settlements. And only hours ago, it won the tender to build the skyscraper that’ll be above the Hunter St Metro station.

A challenge is that it has to bid for large precedent projects with rival companies like Mirvac and Stockland – it may not always win out. Although on some occasions, it does.

Let’s turn to the company’s results. FY24’s results were poor on face value with a $1.5bn net loss, a figure blown out due to impairments and lower property valuations. In FY25, it made a $225m statutory profit and a $386m underlying profit. Its consolidated finance was $7.75bn, down from $9.37bn the year before. Obviously some of this was due to the company existing unprofitable segments, but its construction revenue was down 13% due to the slower strats of projects.

The immediate term

FY26 is widely seen as a transition year where earnings from large project completions may be lower, but the focus on capital recycling, balance‑sheet strengthening, and pipeline development continues. With a solid backlog and strong pipeline, analysts expect contributions to rebound in later years (e.g., from FY27)

Lendlease has not given any broad guidance but has told investors to expect $0.28-0.34 EPS from its investments, development and construction segment. But no guidance was given for its Capital Release Unit. $2bn in capital recycling was targeted, and gearing was expected to be at or below ~15% by the end of the year.

Analysts call for $8.1bn revenue, up from $7.8bn the year before and $0.30 EPS. FY27 is expected to be a year of stronger growth with $9.6bn revenue and $0.58 EPS. The mean consensus price is $6.64 and its P/E is 17.1x for FY26 but 8.7x for FY27.

Is now the time to get into Lendlease?

We think Lendlease won’t decline much further, but could take some months to gain momentum. So for investors willing to wait at least a couple of years, and aren’t really concerned with dividends – it could be one to consider.