L1 Capital has dramatically increased its stake in global property developer Lendlease, becoming its largest shareholder with 10.8 per cent, up from 6.6 per cent. This significant move by the high-profile hedge fund follows a substantial downturn for Lendlease, whose shares plummeted more than 11 per cent recently after reporting a net loss of $749 million for the 12 months through July, a sharp reversal from a $225 million profit a year prior. Lendlease is a global property developer and construction company, involved in creating and managing properties across various sectors. The company’s operations span urban regeneration projects, residential communities, and infrastructure development worldwide. The sell-off has extended its sharemarket slump to approximately 44 per cent, leaving the stock near a 40-year low.
Investment bank Citi subsequently downgraded the stock, slashing its price target and noting Lendlease’s earnings guidance sat 30 per cent below broker estimates. Citi analyst Suraj Nebhani warned that “consensus earnings downgrades as well as elevated gearing could mean investors remain cautious on Lendlease near term.” This underscores a spectacular fall for the 68-year-old former blue-chip company, which once boasted an $11 billion market capitalisation that has since spiralled to $2 billion, leading to its removal from the S&P/ASX 100 Index in March. As shares have tumbled, hedge funds have ramped up bets against Lendlease, with short selling increasing from 1.1 per cent in June to 7.2 per cent.
L1 Capital’s bold move comes as new chief executive Nick O’Neil, appointed from outside the company for the first time since 2002, assumes leadership. He faces the challenge of turning around the company after previous activist campaigns, notably from Allan Gray and HMC Capital, failed to yield desired results despite demands for strategic overhauls and asset divestments. Lendlease’s “capital release unit,” designed to sell $4.5 billion in assets, has instead consumed capital rather than releasing it. Morgan Stanley analyst Simon Chan suggested that while “patient investors” might see a path to an improved balance sheet under the new CEO, “earnings unpredictability” could lead to a volatile two to three years.
