What To Take Away From Lendlease’s Engineering Nosedive

The last week has seen plummeting shares for construction firm Lendlease. What lays in Lendlease’s future, and what can the construction industry learn from this crash?

By all reports, Lendlease had not been stable for quite some time. The drop in shares was sparked last Friday. The company had revealed that it had taken a $350 million hit to its 2019 half-year results.

Shares had dropped to 6.3% that week and continued to plummet even further. Since Friday, we’ve seen a total loss of $2.3 billion, Lendlease’s lowest share price in 2 years.

So, why did Lendlease pull the $350 million? It appears that the company’s engineering and services division has been struggling to perform well.

The company cites “Lower productivity in the post-tunneling phases of NorthConnex, excessive wet weather, access issues and remedial work arising from defective design on other projects” as the key factors.

The engineering division is responsible for NorthConnex motorway tunnel (Northern Sydney), and new tunnels and stations for Melbourne Metro.

What lays in Lendlease’s future?

Onlookers are hoping that this crash is the catalyst for Lendlease. A senior Lendlease banker has voiced hopes that this will be the spark for Lendlease to ditch its engineering division and reset the business back to being a stable, income-generating operation.

Goldman Sachs has advised that scaling back future growth plans would help secure safety for the company. More than that, they propose that removing engineering completely would be the best route to drastically reducing risk and overheads as well as regaining the confidence of investors.

This comes with the warning for more potential write-downs in Lendlease’s future, and questions around the completion of the Melbourne Metro project.

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