August 19, 2019 / 12:01 AM / a month ago

UPDATE 2-Australia's Lendlease progresses E&S unit sale, positive on outlook

* Solid interest in sale of underperforming E&S unit

* Annual profit slumps 41%, revenue down 1 percent

* Shares rise on sale progress, positive outlook (Recasts, adds analyst and CEO quotes, share performance)

By Shriya Ramakrishnan and Devika Syamnath

Aug 19 (Reuters) - Australian construction firm Lendlease Group said on Monday it has attracted “a good level” of interest from prospective buyers for its underperforming engineering and services business, which dragged down full year profit.

Lendlease reported a 41% fall in net profit for the year to June 30, but the update on the sale of the unit and some upbeat outlook for longer-term projects pushed Lendlease’s shares 11% higher.

The Sydney-based firm said several parties were undertaking due diligence on the engineering and services unit, which it deemed non-core following a review last year. Reuters reported in March that Lendlease had appointed bankers to run the sale, citing sources aware of the planned deal.

Shares were on track for the best intraday gain in more than 11 years, despite the slump in net profit to A$467 million ($316.58 million) for the year ended June 30. Revenue dropped 0.1% to A$467 million.

Earnings were hit by a A$350 million charge in February in relation to a Sydney tunneling project and delays at its engineering and services business.

James McGlew, executive director of corporate stockbroking at Argonaut, said that Lendlease’s outlook was being viewed positively in a troubled property development sector.

“Importantly, they have enunciated a solid plan moving forward,” including a strong pipeline, McGlew said.

Lendlease said its development pipeline was approaching A$100 billion ($67.7 billion) in project value, “underpinning a very strong long term outlook.”

Chief Executive Steve McCann highlighted growth in the company’s urbanisation pipeline to around A$80 billion from $25 billion five years ago, with development activity averaging $4 billion per annum.

“There is scope for activity to accelerate materially over the medium term given the significant growth in the pipeline and its diversity by gateway city and product type,” McCann said.

Lendlease last month announced a contract with Alphabet Inc’s Google to develop $15 billion worth of residential and retail space in Silicon Valley.

However, some analysts were concerned the sale of the engineering and services business could be hit by softening conditions in the construction sector.

“The guy who is going to buy it is not going to be offering top prices now that they have declared this business is underperforming,” Mathan Somasundaram, a Market Portfolio Strategist at Blue Ocean Equities said.

Bank of America Merrill Lynch analysts have previously said the unit could fetch about A$500 million.

Lendlease declared a final dividend of 30 Australian cents a share, down from 35 cents a year ago.

$1 = 1.4751 Australian dollars Reporting by Shriya Ramakrishnan, Devika Syamnath and Aditya Soni in Bengaluru; Editing by Peter Cooney and Jane Wardell

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