• HOME
  • INVESTMENTS
    • Equities >
      • Australia All Cap
      • Australia Small Cap Income
      • Global Mobility
      • Global High Conviction
    • Property >
      • Listed Property
      • TAMIM Property
    • Income >
      • Credit
  • INSIGHTS
    • Insights
    • Weekly Reading Lists
  • ABOUT
  • CONTACT
Tamim Asset Management
  • HOME
  • INVESTMENTS
    • Equities >
      • Australia All Cap
      • Australia Small Cap Income
      • Global Mobility
      • Global High Conviction
    • Property >
      • Listed Property
      • TAMIM Property
    • Income >
      • Credit
  • INSIGHTS
    • Insights
    • Weekly Reading Lists
  • ABOUT
  • CONTACT

Stock Insights

The Lendlease income opportunity.

13/7/2017

0 Comments

 
​Following on from our previous discussion of income versus capital as a source of portfolio return Scott Maddock and the team at CBG, of the TAMIM Australian Equity Income IMA, look at Lendlease (LLC.ASX).
The Lendlease income opportunity
Scott Maddock
Lend Lease logo
LLC is a leading development, construction and investment management business, operating in 9 countries. We believe the company is positively leveraged to global economic activity. Operationally the company has been on a path of continuous improvement since their last major construction losses in 2004. Delivering a strong operational track record, generating 14% ROE. We expect LLC to have net cash within 18 months (5% gearing currently).

The current dividend does not seem high at first glance; however, LLC has a history of paying excess cash to shareholders – notably following the sale of a major Shopping Centre development for $1.3bn in the UK in 2014. We feel LLC will have the opportunity to deliver more cash to shareholders as current projects mature.

The Australian housing cycle is a fixation for most of us and we assume all our readers have a strong view regarding the near-term path of housing prices. We feel it’s clear that as housing construction activity peaks in Sydney and Melbourne this year, that housing prices will also peak. This process is assisted by controls on bank lending – both internal and those imposed by the bank regulator, APRA.
In this context, many would say LLC is a risky investment – and that’s true to an extent – contracting and construction businesses have inherent risks which we do consider. However, the housing cycle is less of a risk than you would think at first glance;
​
  • LLC’s exposure to Australian apartment earnings peaks this year at only 20% of group earnings.
  • Developments are 80-90% (and higher) pre-sold and most purchasers (especially from overseas) are holding a significant unrealised profit. This suggests there will be a low final payment default rate as buildings are completed.
  • Even during the GFC both LLC and Mirvac Group observed less than a 3% default rate, recently defaults are running at less than 1%.
  • Lend Lease’s apartment construction business includes projects in the UK and USA, further diversifying the sources of likely cash flow.

In summary, our investment thesis is that LLC has invested ahead of the economic cycle, has significant pre-sold revenue for work in progress, with buyers having paid 10% deposits and sitting on capital gains – therefore significant defaults or losses for LLC are unlikely. We expect that as most projects are finalized during the next twelve months (see table) we will see significant cash generated. Since LLC has relatively low levels of debt, cash should be available to increase dividends or potentially allow a capital return.


Apartment projects in delivery - settlement profile
Source: Lend Lease company filings
National major road construction (commencements, real terms)
Source: Lend Lease company filings
Just as importantly LLC earnings will benefit from growth in construction activity in Australia – particularly in road-building and related infrastructure. The company has also been increasing capital employed offshore. Capital allocated internationally is expected to increase from 23% of total to 30-50% as LLC apply their expertise in Urban Renewal projects around the world.
​
We believe valuation remains attractive vs. history and global peers, on a 12x forward PE vs 17x for similar global listed construction companies. LLC is likely to deliver more cash to shareholders along with a positive share price return.
LLC.ASX 5 year price chart
At 5 July 2017
0 Comments

Your comment will be posted after it is approved.


Leave a Reply.

    Stock Commentary

    At TAMIM we are committed to educating investors on how best to manage their retirement futures.

    Sign up to receive our weekly newsletter:

    * indicates required

    TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.

    Archives

    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    December 2015

    Categories

    All
    2016 Presidential Election
    5G
    AGM Season
    Apple (AAPL.NASDAQ)
    Asia Small Companies
    ASX
    ATL.AX
    Aus Equity All Cap Portfolio
    Aus Equity All Cap Value Portfolio
    Aus Equity Growth Portfolio
    Aus Equity Income Portfolio
    Aus Equity Small Cap Portfolio
    Australian Stocks
    Autonomous Vehicles
    Big Four Banks
    Brexit
    Electric Vehicles
    Emerging Markets
    Energy
    ENN.AX
    FAANG
    Financials
    Fintech
    Global Equity High Conviction Portfolio
    Global Mobility
    Gmg.ax
    Gold
    Growth Stocks
    Guy Carson
    Healthcare
    Income Investing
    Infrastructure
    International Stocks
    Investment Thematics
    IT Services
    Mergers & Acquisitions
    Mobility
    Pharma
    Property
    Rare Earths
    REITs
    Reporting Season
    Retail
    Robert Swift
    Ron Shamgar
    SLK.AX
    Small Cap Income Portfolio
    Small Caps
    Stock Report
    Takeovers
    Technology
    Telco Stocks
    Telstra (TLS.ASX)
    Tourism
    TPG
    Utilities
    Value Investing
    Video
    Wesfarmers (WES.ASX)

    RSS Feed

TAMIM | Equities | Property | Credit
​

TAMIM Fund
Australia All Cap
Australia Small Cap Income
Global Mobility
Global High Conviction
Credit

Listed Property
TAMIM Property
Company
About
Contact
Insights
Invest Online
Login
Other
Privacy Policy
Terms & 
Conditions
​Disclaimer
Contact
Level 4, 55 Grafton Street
Bondi Junction, Sydney NSW, 2022

1300 750 007

ima@tamim.com.au

DISCLAIMER

​The information provided on this website should not be considered financial or investment advice and is general information intended only for wholesale clients ( as defined in the Corporations Act). If you are not a wholesale client, you should exit the website. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions. Where the website refers to a particular financial product, you should obtain a copy of the relevant product services guide or offer document for wholesale investors before making any decision in relation to the product. Investment returns are not guaranteed as all investments carry some risk. The value of an investment may rise or fall with the changes in the market. Past performance is no guarantee of future performance. This statement relates to any claims made regarding past performance of any Tamim (or associated companies) products. Tamim does not guarantee the accuracy of any information in this website, including information provided by third parties. Information can change without notice and Tamim will endeavour to update this website as soon as practicable after changes. Tamim Funds Management Pty Limited and CTSP Funds Management Pty Ltd trading as Tamim Asset Management and its related entities do not accept responsibility for any inaccuracy or any actions taken in reliance upon this advice. All information provided on this website is correct at the time of writing and is subject to change due to changes in legislation. Please contact Tamim if you wish to confirm the currency of any information on the website.  

magellen, kosec, clime, wilson, wam, montgomery, platinum, commsec, caledonia, pengana, tamim

  • HOME
  • INVESTMENTS
    • Equities >
      • Australia All Cap
      • Australia Small Cap Income
      • Global Mobility
      • Global High Conviction
    • Property >
      • Listed Property
      • TAMIM Property
    • Income >
      • Credit
  • INSIGHTS
    • Insights
    • Weekly Reading Lists
  • ABOUT
  • CONTACT