Unloved Lend Lease offers value

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How long have you held the stock?

We initially entered Lend Lease towards the end of the GFC, after seeing the company secure a series of major development opportunities. We increased our weighting during the second half of 2013 as it became clear the housing market was accelerating and improvement in financial markets meant there was an increased appetite for its end product.

Lend Lease

What do you like about it?

The business was in a strong financial position during the GFC, especially compared to its peers, and this enabled the group to acquire interests in some very significant projects. In recent years, management has made meaningful progress in repositioning the business to be a more integrated property group with strong quality characteristics. Despite this, Lend Lease has remained undervalued with perceptions towards the company soured by a decade of poor share price performance. Realisation of the value on offer has suffered by inclusion in the property sector, which means it is compared with companies of a very different nature and often covered by property trust analysts more used to valuing passive assets.

How is it better than its competitors?

The fully integrated model of Lend Lease provides a key competitive advantage in securing and delivering large development opportunities. It faces competition in most parts of its business, however there are very few companies that have the same level of expertise across all parts of the development value chain. We see the landmark Barangaroo project as an example of Lend Lease’s unique ability to secure, design and construct large scale integrated development opportunities, while attracting third party capital into the funds management platform.

Lend Lease is also uniquely positioned as a fully integrated player in the infrastructure market, with strong capabilities at all stages of the process, from arrangement right down to the physical delivery of the actual infrastructure itself via its construction capabilities.

What do you like about its management?

Management has been very consistent in terms of outlining their strategy for the business going forward and their actions have been consistent with this strategy. We view a consistent, logical strategy as one of the most crucial measures of management quality.

What is your target price on LLC?

We see Lend Lease as trading materially under its intrinsic value and currently have a valuation of above $15.

At what point would you sell it?

Lend Lease is well positioned to generate significant cash flow as it realises the underlying value in the current pipeline of projects and we think the market is not fully valuing this cash flow. The stock also trades at a discount to the market multiple, which we think underestimates the improvement in the quality of the business over the last few years.

How much has it added (subtracted) to your overall portfolio over the last 12 months?

The overall portfolio has returned around 17% over the last 12 months, which is around 6% better than the index. Over that period, Lend Lease has returned 25%, adding around 1.5% of the 6% outperformance.

Is it a liquid stock?

Yes. Lend Lease has a market capitalisation of over $7 billion and turnover generally exceeds $20 million per day.

Where do you see the value?

We see Lend Lease as a business that is well managed, with a strong earnings outlook and improved competitive position where the market is yet to fully value the quality of the underlying business.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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