Should you buy shares in Lendlease Group (ASX: LLC) for its $71 billion development pipeline?

Global infrastructure builder and developer Lendlease Group (ASX: LLC) released its FY 2018 results today. Here are the highlights.

  • Profit after tax was up 5% to $792.8 million
  • Return on equity of 12.7% was within the 10% – 14% target range
  • Full year distributions were up 5% to 69 cents per security (effective yield of 3.3%)
  • Funds under management were up by 15% to $30 billion
  • The development pipeline was up 44% to $71 billion
  • Two new asset classes (residential for rent and telecommunications infrastructure) were added to the funds management platform

Despite the result, shares in Lendlease were down 3% in early morning trade following the announcement which could be due to some profit taking as the share price is up almost 30% since the beginning of the year.

What did management have to say?

Management were pleased with the growth in the development pipeline and the growth in funds under management which provide greater earnings security going forward.

Group Chief Executive Officer and Managing Director, Steve McCann, said, “Our ability to secure development pipeline, combined with the support of our capital partners, has allowed us to progress strategic opportunities across the residential for rent, office, retirement and telecommunications infrastructure sectors.”

Are Lendlease shares a buy?

Top broker Goldman Sachs upgraded the stock and added it to its “conviction list” and its not difficult to see why.

The large and increasing long term development pipeline provide some earnings visibility in an uncertain world while the growth in the funds under management business will provide more consistent recurring earnings (companies such as Macquarie Group Ltd (ASX: MQG) have benefited from a similar effect).

The company’s presence in multiple locations abroad also provides some diversification although there are some risks with the Australian engineering business which has been lagging the other divisions in performance. Overall, I think Lendlease could be a good long term performer.

Whilst Lendlease has been a great stock to own this year, its not top of our buy list. Read this FREE REPORT to find out which companies made the cut.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can find Kevin on Twitter @KevinGandiya.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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