The AFR reported that four senior Lend Lease construction executives have been stood down following the discovery of “discrepancies in the reporting of profits and losses” by subsidiary Abigroup. They relate to two infrastructure projects. The company did not name the executives but the AFR said they include Peter Brecht, the managing director of the Australian construction division. The Lend Lease share price has fallen by about 7 per cent, wiping out all the gains since mid-July.
UBS has a buy and an unchanged price target of $9.25, but is clearly concerned:
“In our view, today’s announcement raises questions regarding the profitability of individual projects acquired as part of the Valemus transaction with specific risks in FY13 around Peninsula Link (where the company intends to review project feasibility) and Adelaide Desalination Plant (90% complete – the last remaining project covered by warranties as part of the Valemus acquisition). Our earnings remain unchanged pending the outcome of the review.”
Deutsche has a price target of $9.50 and a buy, but is worried about more writedowns:
“However, their discovery does raise concerns re the possibility of additional writedowns at Peninsula Link & of broader compliance / cultural issues within the division. That said, we would note that: (1) at this stage, LLC believes that the issues are confined to the two identified projects; & (2) with Peninsula Link due to complete by Dec-12, we would expect the net position of the project to be relatively clear by this point. With LLC now trading on a FY13f PE of 8.3x, we believe today’s 7% price decline more than captures the negatives associated with this morning’s announcement.”
Deutsche has earnings per share growth falling to 2.1% next financial year (6.1% this financial year) and significant write downs will not do the stock any favours. Its basic fundamentals are OK, with a low prospective earnings multiple of 8.3 times and a forward dividend yield of 4.9% but in such bearish market conditions uncertainty about management is not an encouragement.