Lendlease is similar to Goodman Group in that it has experienced internal development capability and strong capital partner relationships which help it build its other arm: funds management, where it earns fees on performance and management of billions of dollars worth of property. Growth in funds under management was 15 per cent to $30.1 billion in fiscal 2018. But how sustainable is that growth? And will all this be enough when the commercial property cycle changes? When interest rates rise and when property valuations and volume transactions fall away?
Atlas fund manager Hugh Dive admits that Lendlease is a cyclical business but that it is shifting away from that.
“It’s a cyclical stock, but not as cyclical as it has been in the past,” he says. “If it had 40 per cent gearing you wouldn’t touch it!”
Lendlease’s net debt to total tangible assets, less cash is 8.2 per cent which will help the company wade through the cycles.
Dive also reminds investors that 40 per cent of Lendlease’s earnings come from offshore, giving it plenty of upside in the coming year from the depreciated Australia dollar.
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