The Lendlease Group (ASX: LLC) share price is down after giving a FY21 business update.
What’s happening to Lendlease?
It said that it’s experiencing challenging operating conditions associated with COVID-19, which continue to affect each of its segments in the group.
As a result of these impacts, Lendlease’s FY21 core operating profit is expected to be in a range of between $375 million to $410 million after tax.
Lockdowns in places like London have impacted commercial and residential customers from inspecting new products, and committing to leasing and purchasing, as well as investment partners delaying investment decisions.
There has been a delay in securing an investment partner for its International Quarter London and weaker rental demand and lower rents on the recently completed residential for rent buildings at Elephant Park in London.
But there were some positives. For example, in Sydney, an investment partner was introduced for the second residential tower at One Sydney Harbour.
Other updates
Lendlease said that details have emerged about claims relating to historical projects completed before the sale of its Engineering business. While the claims are subject to dispute proceedings, which take time to evaluate, the group anticipates accounting for an additional provision in the range of between $90 million to $175 million after tax.
The company said that Melbourne Metro, the remaining retained Engineering project in delivery, is progressing well and has not required any further provision.
A review
The company is currently going through a review.
It’s reviewing a restructure to support efficient resource allocation and simplification, and execute that strategy after recent divestments.
Another element of the review covers core business operations to ensure projects and operating units are set up to achieve the appropriate returns.
The final part of the upgrade relates to the impact of market uncertainties given the duration of the pandemic on the company’s operations over the short to medium term.
Guidance
Lendlease’s FY21 statutory profit after tax is anticipated to be within the range of $200 million to $320 million.
Gearing is expected to be below the bottom end of its target range of between 10% to 20%.
Summary thoughts on Lendlease and the share price
It’s close to its 52-week low, so it’s worth considering at the current price if you’re already interested in the business.
Lendlease is working on a huge pipeline of work. But it’s hard to know whether it’s going to make a lot of money from them or just run into big problems.
That’s not the type of business I like to invest in, but I can see why some investors would be interested, particularly at this low(er) price. The HY21 result included a number of updates.
There are ASX growth shares that may be able to grow profit much more in the coming years.
