Lendlease’s Google Deal is Massive but our Unchanged AUD 15.20 FVE Factored in Big Improvement

No-moat Lendlease’s AUD 21 billion development agreement with Google in the greater San Francisco area is a positive step. It signals a desire to move past its recent struggles with cost over-runs and timing delays in engineering and construction. The multiyear development includes affordable housing for rent and sale, along with colocated retail and hospitality offerings. At a 15% margin--our assumption for the long-term profitability of Lendlease’s U.S. development pipeline--we estimate the contract could add more than AUD 200 million of EBITDA annually over the 10- to 15- year agreement, nearly 15% of our long-term profit forecast. Nonetheless, we already included a sizable step-up in development revenue in our projections, and combined with lumpiness in project timing and uncertainty over eventual funding, we maintain our AUD 15.20 fair value estimate. Following recent solid performance, shares now screen as fairly valued.