Lendlease Group

The Business

Lendlease runs three connected businesses: a construction arm generating roughly 74-80% of group revenue on an $8.4 billion order book skewed toward defence and data centres; a development division delivering apartments and mixed-use precincts, with major projects including One Circular Quay and Victoria Harbour; and an investment management platform overseeing $43.9 billion of funds under management. What differentiates Lendlease from pure-play developers like Stockland or Mirvac is this integrated model, spanning capital, delivery and asset management under one roof, alongside a legacy international portfolio still being wound down.

Recent Performance

Earnings per share is forecast to soften in the coming year as one-off transaction income within the funds management business normalises, before recovering over the following two years. Construction margins hit 4.3% in FY26, well above the 2.8% long-run average, flattering current profitability. Gearing has climbed from single digits four years ago to 30.3% today as legacy international assets have proven slow to sell, and that overhang has kept the shares depressed.

Outlook

Revenue is expected to keep growing through the remainder of the decade, driven mainly by development completions as major apartment projects settle and by a construction backlog large enough to sustain several years of elevated delivery. Margins are expected to compress over the same period, as construction returns revert toward a more sustainable long-run level and the currently elevated transaction income within funds management normalises. Earnings per share should recover as apartment settlements at One Circular Quay and Victoria Harbour flow through over the next two years, before growing more modestly thereafter. The biggest source of uncertainty in this trajectory is not revenue, which has reasonable visibility from the backlog and pre-sales, but the pace of gearing reduction, which determines whether the dividend can be rebuilt and whether the market closes the current discount to book value.

Our Valuation

We build our fair value assessment from four independent methods: an adjusted net asset approach, trading multiples, a discounted cash flow cross-check, and transaction comparables. Net asset value carries the most weight in our framework because Lendlease's reported earnings are distorted by lumpy development completions and a legacy portfolio in wind-down, making book value a more reliable anchor than a single year of earnings. The full methodology, scenario weighting and resulting fair value estimate are reserved for members.

Key Risks

The largest swing factor is the remaining legacy international capital still to be realised. A meaningfully deeper realisation discount than management has signalled would not only reduce the value recovered from these assets but slow the pace of gearing reduction that the broader investment case depends on. This is a probable rather than tail risk, given the size and complexity of what remains in the portfolio. A second, related risk sits in the balance sheet itself: with gearing well above target and interest cover already narrowed, a covenant breach would likely trigger a ratings downgrade and force refinancing at higher cost, a lower-probability but materially higher-impact outcome. Construction margins, currently running well above their historical average, are a third risk if they revert to long-run norms faster than currently assumed, though a third of the order book is now fee-based rather than fixed-price, which should provide more downside protection than in prior cycles.

What to Watch

The thesis-defining event is the new CEO's strategy update, expected between September and December 2026, which will confirm whether balance sheet repair accelerates or the transformation timeline extends further.

• Nov 2026 Keyton settlement (~$509m) — a sale at or near book value would support our current assumptions on realisation discounts across the remaining legacy portfolio.
• Feb 2027 HY27 results — the first test of FY27 guidance and an early read on whether gearing has begun to decline.

Our full investment rating and recommended course of action are reserved for members.

Company Description

Lendlease operates three linked divisions. Construction is the largest, contributing roughly 74-80% of group revenue ($3.9 billion in FY26) building commercial, defence and data centre projects across Australia, with a third of the order book now fee-based rather than fixed-price. Development delivers apartments and mixed-use precincts, generating $655 million in FY26 with major projects including One Circular Quay and Victoria Harbour. Investment Management oversees $43.9 billion of funds under management, earning fees plus co-investment returns from Australian and international real estate vehicles. A separate, shrinking legacy portfolio of international assets is being wound down to fund balance sheet repair.

Where the Growth Is

The construction backlog is the single biggest driver of near-term earnings, up 42% year-on-year to $8.4 billion and increasingly concentrated in defence and data centre work, both structurally growing categories with security-clearance and technical barriers to entry. This backlog underpins management's target of sustained multi-billion dollar annual construction revenue through the rest of the decade, and with a third of the book now fee-based, it should provide more stable margins than the fixed-price contracts that dominated the division historically.

Competitive Position

Lendlease's most durable advantage is a $5.2 billion preferred construction book built on long-standing government and defence relationships, reinforced by security clearances that few competitors can replicate quickly. This gives the construction division genuine pricing power on complex projects, evident in the 4.3% EBITDA margin achieved in FY26, well above the 2.8% historical average. That advantage is narrow rather than deep: it depends on continued government spending and relationship maintenance rather than structural barriers like network effects or switching costs, and we would expect it to remain intact for perhaps three to five years rather than indefinitely. In development and funds management, Lendlease competes against better-capitalised peers such as Stockland, Mirvac and Goodman Group, none of which face Lendlease's current balance sheet constraints.

Management & Capital Discipline

Management's international expansion over the past decade destroyed shareholder value, leaving a legacy portfolio that now requires an orderly, multi-year wind-down. Capital allocation has since pivoted toward simplification: proceeds from asset sales are directed at debt reduction rather than growth investment, and the Australian core business is being prioritised. On delivery, management has generally met operational earnings guidance, but has serially missed its own balance sheet targets, with gearing rising from single digits to 30.3% against a 15% target over four years. That gap between operational credibility and balance sheet credibility is the central tension investors need to weigh.

Financial Position

Gearing of 30.3% sits well above the 15% target and interest cover has narrowed to around 2.5 times, leaving limited headroom before covenant pressure becomes a live issue. The company holds $4.0 billion of liquidity, split between $751 million of cash and $3.2 billion of undrawn facilities, which removes any near-term forced-sale timeline on the remaining legacy international assets. A recent $908 million hybrid issue extended this runway further. The balance sheet can absorb a moderate downturn, but has little tolerance for a second shock while gearing remains elevated.