Managed Accounts Share Trading Investment Notification - Purchase Of Llc

Good afternoon,

Good afternoon,

Yesterday we made a purchase of Lend Lease shares for 15% of the value of the portfolio. The purchase takes our exposure in the market o 65%, with 35% remaining as cash.

Lend Lease operates a property-based business, with operations that span retail, commercial and residential development, sales and investments. The company pays a dividend currently above 4% per annum; however this is expected to rise sharply with a recovery in the economy and for reasons outlined below.

There are two main reasons behind this investment decision. First, and generally foremost for our investment philosophy (as different to the investment philosophy of many managed funds), the shares have recently had a pullback which is unrelated to any poor announcement by the company or any deterioration in the market. As with many companies we have invested in, LLC has just recently completed a major equity raising. The shares have moved from a high of $10.50 back in September last year to a low around $8.40 in March. Our purchase price was $8.70.

As I wrote above, LLC announced an $800M capital raising at $7.70 per share along with their recent financial results to fund property development projects. This is important: debt markets are still locked up to fund even mid-tier property developers and as many of you will be aware there is a severe shortage of residential property for sale in Australia due, in part, to the difficulties in funding new developments.

Delfin-LLC is in the enviable position of being one of the largest residential property developers in the country and this part of the business contributed to the reported Group financials being 10% ahead of consensus.

A capital raising of this size, against a current market capitalisation of $4.4B, will take some time for the market to digest. Once this "digestion" period is over, we're confident there is 10-15% upside in the share price over any significant downside risk. A further indication of the strength in the market for LLC stock is given by the price that was set for shortfall stock two days ago - there were 23,000,000 shares placed at $8.60 to institutions who took up stock that retail investors decided not to buy at $7.70. Given our purchase was made just 10c above this price, we are confident the price support for LLC stock exists somewhere around those levels.

Secondly and finally, we see LLC moving higher due to a strong balance sheet, a cheaper than average entry price and that once the funds raised are put to work there is an expectation of at least five years of higher and higher profits which will make the 12.5 times (after dilution) earnings for the current year look like a low, distant memory. LLC is a medium term, low risk hold on which we expect to achieve a sale price of $10 plus within three months.

If you would like to speak with me about anything at all, please call the desk.

by: Hayden Kerr

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