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Lendlease share price drops 4% as first-half profit plunges 96%

The LendLease Group (ASX: LLC) share price has fallen 4% this morning after the company reported a 96.3% fall in first-half net profit after tax (NPAT) to $15.7 million.

The company previously saw its share price freefall 30% in 5 days back in November when it announced write-downs of $350 million in its Engineering and Services segment following weather delays and ongoing construction issues relating to several major projects.

What happened in the first half?

LendLease reported first-half revenue of $7.68 billion, down 11% on pcp, with profit falling 96.3% to just $15.7 million (down from $425.6 million in 1H18).

The company announced it is looking at options to offload the troubled engineering and services arm and has been reported in the latest earnings as non-core following a strategic review in the wake of the $350 million write-down.

The total cost of restructuring is estimated at $450-$550 million before tax according to management which could squeeze profitability further for the company going forward.

Management announced an approved dividend of 12 cents per share (cps), down from 34 cps in 1H18 which represents a 65% cut for investors. Given the growth outlook isn’t looking too enticing for the company either, I think LendLease looks set to land firmly in the sell basket on the latest numbers.

The construction and engineering developer maintains significant exposure to Australia’s faltering residential real estate market with infrastructure project numbers and building approvals plummeting in recent months.

Foolish Takeaway

It’s been a continuing theme throughout reporting season as we’ve seen the first signs of slowing earnings growth for many of Australia’s largest real estate developers and construction groups.

I wouldn’t be surprised to see further pain for investors in LendLease in coming months as the slowing market data from the last 6 months continues to translate to higher default rates, more cost blowouts, and further margin squeeze.

I would be steering clear of the Australian real estate investment trusts (A-REITs) such as Mirvac Group (ASX: MGR), which also has significant residential real estate developments, and Stockland Corporation Ltd (ASX: SGP) given the headwinds that are also building in the retail market.

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. 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.