On Friday, UBS upgraded Lend Lease Group (LLC:AU) (OTC: LLESY (OTC:LLESY)) stock from a Sell to a Neutral rating, adjusting the price target to AUD5.79, up from the previous AUD5.56. The change reflects a revised outlook on the company's risk/reward balance following its recent underperformance in the market.
The adjustment comes as Lend Lease Group reshapes its strategy, including the exit from global construction and development operations. This strategic shift is seen as favorable by investors and is considered by UBS to be the most viable option for the company's future prospects.
Despite acknowledging the high execution risks and an uncertain earnings forecast, particularly due to a lacking development pipeline that could impact earnings into FY27/28, UBS notes the possibility of near-term support. This potential uplift is tied to the sale of assets, which could fetch higher prices than currently anticipated, thereby providing some relief to the company's earnings.
The new price target reflects an approximate 4% increase, which UBS attributes to revisions in its forecasts. These revisions are mainly due to the anticipated timing of asset sales and expected gains on disposal, along with minor adjustments to net asset value (NAV) valuation assumptions. Lend Lease Group's strategic decisions and potential asset sales are pivotal factors in this updated financial outlook.
In other recent news, Australian construction firm Lendlease has decided to withdraw from international construction markets to focus on growth within its domestic market.
The company has set up a new capital release unit (CRU) with the aim of recycling A$4.5 billion ($2.9 billion) by completing ongoing transactions. This strategic shift is intended to address shareholder demands for a greater emphasis on domestic operations, following criticism over Lendlease's international performance.
Lendlease aims to achieve A$125 million in annual savings over the next 12 months and plans to return A$500 million to shareholders via an on-market buyback. This decision marks a significant change in the company's strategy since it sold its wealth management division to National Australia Bank (OTC:NABZY).
Despite its planned exit from overseas construction, Lendlease will continue to maintain its global investments platform. CEO Tony Lombardo stated that the company will concentrate on expanding the funds it manages worldwide.
Lendlease also expects to book impairments of up to A$1.48 billion due to the write-down of investments in its international projects. However, the company has maintained its fiscal 2024 outlook for return on group equity. These are the recent developments in the company.
InvestingPro Insights
As Lend Lease Group (OTC: LLESY) navigates through strategic changes, real-time data from InvestingPro provides further context to UBS's recent rating upgrade. With a market capitalization of approximately $2.62 billion and a challenging P/E ratio standing at -17.15, the company's financial health and future prospects are a key focus for investors. Notably, LLESY is trading at a low revenue valuation multiple, which may appeal to value-oriented investors. Additionally, the company has maintained dividend payments for an impressive 33 consecutive years, offering a current dividend yield of 2.05%, signaling a potential draw for income-focused portfolios.
InvestingPro Tips highlight that LLESY is a prominent player in the Real Estate Management & Development industry, yet it has suffered from weak gross profit margins, which is reflected in the gross profit margin of 7.82%. On a more positive note, analysts predict the company will be profitable this year, and it is trading at a low EBITDA valuation multiple, suggesting that its earnings before interest, taxes, depreciation, and amortization are undervalued relative to the market.
For investors seeking a comprehensive analysis and additional insights on Lend Lease Group, InvestingPro offers a range of tips and metrics. There are 11 additional InvestingPro Tips available that can further guide investment decisions, which users can access with the exclusive coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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