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2nd December 2014 - Private Wealth
When do one-offs become a pattern?
This month’s stock in focus is Lend Lease Group (LLC). LLC is an international property and infrastructure group with operations globally. Its businesses encompass all aspects of property and infrastructure development from master planning and construction through to maintenance and investment management. Over the last few years LLC has accumulated a record of successfully executing and more importantly exiting a number of projects across various jurisdictions providing a diversified and impressive pipeline of achievement.
With a history spanning 50 years, LLC has been responsible for developing such famous projects as the Opera House, ANZAC Bridge, Petronas Towers and the 9/11 Memorial in New York.
The company has a strong pipeline of quality projects in various stages of delivery. Strong pre-sales from these projects, particularly in Australia and the UK will form the basis of earnings for the next 2 years. Possibly the most high profile project and one nearing completion is the Barangaroo development in inner city Sydney. After an at times problematic development, this project is now nearing completion with strong pre-letting gradually de-risking the project.
Interestingly the diversified nature of projects both geographically and in terms of time to completion is often cited as a potential issue for Lend Lease, as is the nature of their cashflows which are largely generated upon exit from developments. While the transactional nature of the business can make earnings more volatile, the impressive track record of execution that LLC has developed means that it is becoming less and less appropriate to discount these earnings significantly.
LLC delivered a strong profit in 2014, with profit after tax improving by 50% on the prior year and distributions increasing by 69%. With demand for both listed and unlisted property likely to remain strong and with its strong balance sheet and access to Funds, the medium term future for earnings and growth at LLC looks very positive, even in light of the recent very strong performance of the company’s stock. This price action not only reflects the growth across their divisions but also the markets increasing willingness to recognise LLC’s ability to continue to successfully complete and sell projects.
Circa 13,200 employees
$37.7 Billion worth of projects in the pipeline
$2.5 billion residential pre-sales
$16.3 billion FUM
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