Key Insights

The projected fair value for Lendlease Group is AU$8.71 based on 2 Stage Free Cash Flow to Equity Current share price of AU$5.32 suggests Lendlease Group is potentially 39% undervalued The AU$6.65 analyst price target for LLC is 24% less than our estimate of fair value

Does the October share price for Lendlease Group (ASX:LLC) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by estimating the company's future cash flows and discounting them to their present value. Our analysis will employ the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward.

We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

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What's The Estimated Valuation?

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:

10-year free cash flow (FCF) forecast

2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Levered FCF (A$, Millions)  AU$956.9m AU$154.1m AU$245.2m AU$319.4m AU$390.0m AU$454.0m AU$510.4m AU$559.5m AU$602.5m AU$640.5m Growth Rate Estimate Source Analyst x2 Analyst x2 Analyst x2 Est @ 30.26% Est @ 22.11% Est @ 16.41% Est @ 12.42% Est @ 9.63% Est @ 7.67% Est @ 6.30% Present Value (A$, Millions) Discounted @ 11%  AU$864 AU$126 AU$180 AU$212 AU$234 AU$246 AU$250 AU$247 AU$240 AU$231

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = AU$2.8b

Story Continues

After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (3.1%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 11%.

Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = AU$640m× (1 + 3.1%) ÷ (11%– 3.1%) = AU$8.6b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= AU$8.6b÷ ( 1 + 11%)10= AU$3.1b

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is AU$5.9b. In the final step we divide the equity value by the number of shares outstanding. Relative to the current share price of AU$5.3, the company appears quite good value at a 39% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.ASX:LLC Discounted Cash Flow October 13th 2025

Important Assumptions

The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Lendlease Group as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 11%, which is based on a levered beta of 1.816. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

View our latest analysis for Lendlease Group

SWOT Analysis for Lendlease Group

Strength

Debt is well covered by earnings.

Weakness

Dividend is low compared to the top 25% of dividend payers in the Real Estate market.

Opportunity

Annual earnings are forecast to grow faster than the Australian market.

Good value based on P/E ratio and estimated fair value.

Threat

Debt is not well covered by operating cash flow.

Paying a dividend but company has no free cash flows.

Revenue is forecast to grow slower than 20% per year.

Next Steps:

Whilst important, the DCF calculation is only one of many factors that you need to assess for a company. It's not possible to obtain a foolproof valuation with a DCF model. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. Why is the intrinsic value higher than the current share price? For Lendlease Group, there are three relevant factors you should assess:

Risks: As an example, we've found 3 warning signs for Lendlease Group (1 is concerning!) that you need to consider before investing here. Future Earnings: How does LLC's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!

PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the ASX every day. If you want to find the calculation for other stocks just search here.

Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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