Lend Lease

Lend Lease (LLC) have a reiterated Outperform recommendation and a price target of $21.05 per share from analyst Macquarie Research Equities (MRE). As investors were yesterday reeling from the heavy selling that plagued global markets, the reporting season continued, with Lend Lease (LLC) reporting its interim result. Management announced Net Profit After Tax (NPAT) of $163.5m (excluding revals), which was in line with Macquarie Research Equities (MRE) forecast with 12/5 percent EPS growth on track.. LLC reported NPAT of $163.5m (excluding revaluations), was in line with MRE’s $164.4 forecast, though the composition differed, mostly a result of the recently flagged $118.8m provision taken on UK construction operations and the distribution from Lend Lease Global Property Fund ($33m 1H07 with a profit of $87m expected in 2H07). FY07 guidance of $399m (+12.5%) was reiterated. A strong performance over the six months saw over $600m of new equity raised, providing $2bn of future FUM. Total FUM is now A$10.2bn and this is set to increase significantly as new funds are launched and existing funds continue to grow. New fund initiatives flagged include UK wholesale funds for retail and residential assets, further expansion of the Asian retail fund launched in December 2006, and he potential for a communities fund in the US. MRE believe that LLC should undergo further multiple re-rating as it increase its funds management earnings contribution, and is therefore an important catalyst for the stock looking ahead. The retail development pipeline expanded +$1.1bn over the half to A$5.3bn and the gross sales value of the communities backlog is now >A$30bn. The US communities business will provide a significantly increased contribution over the next few years driven by Actus (+72% profit contribution) and further expansion into masterplanned communities. Management flagged more US communities acquisitions, such as Lowry Range and Horizon City, over the next 12 months to build scale. Delfin/LLD performed well given the stage of the cycle and new managed fund initiatives (LLCF1) provide the platform to grow earnings in an otherwise challenging environment. With the Bluecircle option dealt to during the half year, Bluewater ($1.6bn) is now one step closer to the selling block. Recent Provisions taken for losses on UK projects at the 1H07 result take into account an extensive review on the profitability of all current projects in the UK. Strong contributions and outlooks from the US and Asia Pacific divisions supported by a record order book continue to drive EPS growth over the medium-term. LLC continues to trade at a discount to its peer group and will undergo furthermultiple re-rating as it increases its funds management earnings contribution. In addition, the construction division continues the process of de-risking.