L1 Capital is attempting to achieve what some of Australia’s pre-eminent activist investors have failed to do for years; oversee a turnaround in embattled global property developer Lendlease.
The high-profile hedge fund has emerged as the largest shareholder in Lendlease after buying up the stock on Wednesday and Thursday last week, lifting its stake to 10.8 per cent from 6.6 per cent previously.
The buying spree took place just days after Lendlease’s shares tumbled more than 11 per cent after the property giant reported a net loss of $749 million in the 12 months through July from a net profit of $225 million a year earlier.
The sell-off extended the company’s slump on the sharemarket to about 44 per cent as it languishes near a 40-year low.
Investment bank Citi downgraded the stock and slashed its price target after the result, noting that Lendlease’s earnings guidance sat 30 per cent below the broker’s initial estimates.
“Consensus earnings downgrades as well as elevated gearing could mean investors remain cautious on Lendlease near term,” warned Citi analyst Suraj Nebhani.
The move underscores a spectacular fall from grace for the 68-year former blue-chip company, which once boasted a market capitalisation of $11 billion.
That has since spiralled to $2 billion, prompting S&P Dow Jones Indices to kick Lendlease out of the S&P/ASX 100 Index in March.
As the shares tumbled, hedge funds have ramped up bets against Lendlease, particularly over the past three months.
The percentage of its shares held by short sellers has jumped from 1.1 per cent at the start of June to 7.2 per cent – the highest level since November 2023.
L1 declined to comment on why it was backing the property developer. The money manager initially disclosed its Lendlease holding in mid-June when it became a substantial shareholder.
On the same day, fund managers Allan Gray and HMC Capital dropped below the 5 per cent threshold following a years-long activist campaign.
The money managers were among a chorus of activist investors that also included John Wylie’s Tanarra Capital and superannuation giant Aware Super, that drove a high-profile campaign in 2024 demanding a strategic overhaul, board renewal and asset divestments.
Lendlease’s solution was to create a so-called capital release unit that would ring-fence $4.5 billion of assets that were earmarked for sale. The proceeds were intended to pay down debt, return capital to shareholders and refocus the company’s core investment, development and construction units.
But those efforts have failed, with the unit sucking in capital rather than releasing it.
New chief executive Nick O’Neil, who started in the role on Monday, now faces an enormous challenge. Lendlease appointed the former head of Australian real assets at AustralianSuper in June, going outside its own ranks for the first time since 2002.
“For the patient investors, there could in theory be a path to an improved balance sheet, with the new, external CEO … potentially casting a fresh set of eyes on the company,” said Morgan Stanley analyst Simon Chan.
“This upside must admittedly be balanced with the earnings unpredictability of the stock, which, as our revised forecasts highlight, could face a rather volatile two or three years.”
Allan Gray had increased its stake to 8.3 per cent earlier this year, cementing its position as Lendlease’s largest shareholder. But the fund manager cut that holding back to 7.2 per cent in April for less risky investment elsewhere.
“The degrading [net tangible asset] and lack of profitability means the risk reward looks different to what it did two years ago,” said Allan Gray’s Suhas Nayak at the time. “That warranted some adjustments.”
A month later, Allan Gray’s stake dropped below the 5 per cent substantial shareholder threshold.
The fund manager declined to comment on Wednesday on whether it still held the stock.
Source: https://www.afr.com/markets/equity-markets/l1-s-lendlease-stake-above-10pc-as-activist-investors-start-to-bow-out-20260826-p60rm8