Investors give Lendlease a tick for overhaul amid warning it ‘will not be easy’

Lendlease’s strategy of selling $4.5 billion in offshore assets and cutting staff by a third was welcomed by key investors but analysts say the property behemoth may struggle to build its Australian project pipeline beyond Barangaroo and score enough wins in the globally competitive funds management business.

Facing its toughest time in decades, the company crumpled to investor pressure on Monday unveiling the most significant change to its operations since former chief executive Steve McCann took it global, a shift that will mean it sells its overseas construction and development projects and returns cash to shareholders.

A shadow hovers over Lendlease boss Tony Lombardo as he executes a tactical retreat from the company’s overseas operations.Credit: Louie Douvis

“Running down certain segments – i.e. divesting assets – whilst reducing 35 per cent of total staff will not be easy,” said Morgan Stanley analysts Simon Chan and Lauren Berry. “Refocusing on Australia is good, but its pipeline post Barangaroo/Melbourne Quarter/Victoria Cross is merely $6-7 billion, with limited projects due for completion in financial year 2026,” they said.

Lendlease chief executive Tony Lombardo is moving swiftly to simplify the ASX-listed group and bring it back to its Aussie roots, but if his pitch and pace fails to live up to expectations, high-profile dissident investors may be baying for his resignation.

David Di Pilla’s HMC Capital, one of a group of three big investors pushing for an overhaul of the business, said the company had taken decisive action in its strategy update to simplify the business and focus on its core, high return on equity business in Australia.

“The plan is a major step forward in positioning Lendlease to deliver appropriate returns for its security holders, and aligns with the recommendations we set out in our white paper in August 2023 and that we have been constructively engaging with Lendlease on over the intervening period,” Di Pilla said.

Other vocal shareholders, John Wylie’s Tanarra Capital and Allan Gray, also support the pivot.

Underpinning the profound shift, Lombardo said on Monday a new Lendlease was emerging: “One that is firmly anchored in the very best of our proud legacy, but less complex, more focused and fit for purpose.”

The company, founded by Dick Dusseldorf as the Civil and Civic building company in 1952, was acquired by Lendlease in 1961 and has been trading on the Australian Stock Exchange since 1962. Its mantra of growth, performance and no nasty surprises made it a top 10 company with “bulletproof” earnings and 25 consecutive years of profit growth. That hard-earned reputation was undermined by its growing complexity and shares gradually fell from a 1999 high of $23.67.

Its stock was trading about 10 per cent higher following Lombardo’s announcement on Monday, closing at $6.34, although they fell slightly on Tuesday, by 1.8 per cent. A month ago, they were as low as $5.89.

Citi analysts said the new strategy should leave Lendlease looking in much better shape with significant value upside. “We estimate potential for the share to re-rate to about $8 per share on successful execution of asset sales. However, the complex nature of closing out of businesses will lead to investors being cautious near term,” the broking firm said.

Investment house Macquarie said the restructure would create a simpler business model, but warned the divestments of large overseas assets with limited impairments would be a key hurdle.

After the sale of its global assets, Lendlease will focus on fund management and developing big property projects with about 75 per cent of its working capital in Australia. It has a number of major projects under way in Australia, including Melbourne Quarter and Queen Victoria Market and the One Circular Quay towers in Sydney.

The company warned it would write down up to $1.5 billion doing the restructure, but said it would target an initial $500 million share buyback from the sale proceeds, with more likely to come later.

“Not much activity may be seen on the buyback near term,” said City analysts, given the long-dated timing on some of the asset sales.

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