Property developer Lend Lease Group (ASX: LLC) has built itself a solid foundation in the past few years and this year is no exception. Shareholders should be more than satisfied following its FY14 results, thumping analysts' estimates. Here are some key highlights from today's report.
- A 50% boost in net profit after tax from FY13
- A 5.9% increase in revenues from last year to $13.94 billion
- Return on shareholder's equity (ROE) of 18.2% for the year
- A final dividend per share of 49 cents was announced, raising its final dividend for the year to 71 cents per share
I think its current results are solid, reflecting improving economic conditions and Lend Lease's quality management. Given its massive size, an increase in profits after tax of 50% is outstanding for Lend Lease. It's important to note that higher profits were a direct result of its Bluewater shopping centre interests in England, accounting for a massive $480 million chunk of profits.
Furthermore, Lend Lease's results were also aided by a 47% increase in profits in its strong American divisions, primarily driven by the construction business in key markets such as New York and Chicago. However, this growth was dragged down by weak profit figures in Australia and Asia dropping 12% and 34.5% respectively. Both were driven down by weaker construction contributions, despite record low interest rates stimulating the housing market.
What does the future hold for Lend Lease?
A company as large as Lend Lease cannot continue providing 50% profit growth for the rest of its operating life, and it's important to note that the one-off sales like its Bluewater interest has dearly helped its profit position this year. However, in its latest annual report, management was optimistic about growth in the next few years and I think it's hard not to be happy.
One of the most exciting prospects for Lend Lease is its $6 billion Barangaroo South project at Sydney's Darling Harbour, a three-tower site that will include shopping areas, residential properties and a hotel in conjunction with Crown Resorts Ltd (ASX: CWN). Lend Lease has inferred that it's making further progress in the completion of the project and has also built a third office tower this year. When completed, it's more than likely to provide Lend Lease with some sweet returns.
Further potential tailwinds for Lend Lease that are not mentioned in its annual report include plans by the government to drive infrastructure projects, in an attempt to boost our economy's performance. The infrastructure plan has already pumped approximately $10 billion into the development pipeline, with a proposed $50 billion in social infrastructure and road expenditures set to occur in the next few years.
Despite outstanding results, the valuation inferred by Lend Lease doesn't quite convince me. Lend Lease trades on a relatively hefty price-to-earnings ratio of 19, given it has already gained about 49% in the past year. I think growth expectations have already been impounded into its price and a result, it has little upside potential.
If investors can obtain a lower entry point, I think they will be set to make some modest returns in the future, but in the meanwhile Lend Lease is a solid hold for me.
