Treasure Chest: Catalysts For Lend Lease

This story features LENDLEASE GROUP. For more info SHARE ANALYSIS: LLC

By Greg Peel

What?

JP Morgan has upgraded property construction and management stalwart Lend Lease Group ((LLC)) to Overweight, taking to six the number of brokers in the FNArena database with a Buy or equivalent rating from seven covering the stock.

Why?

Following the formal integration of Valemus into the Group, and updating macro forecasts, the broker has adjusted its LLC earnings forecasts and increased its price target to $9.97 from $9.22. This leaves LLC trading at around a 24% discount to the broker's valuation and a 30% discount to the ASX 200 Industrials ex Financials on a PE basis. The broker believes Valemus poses a risk that does deserve a discount, but only 10%.

The main risk stems from Valemus' backlog of fixed price developments which LLC has acquired and which provide loss potential. The broker feels the market is being more than compensated for this risk in the LLC price and notes Valemus has successfully secured new work in 2011, providing LLC with leverage into resources-related growth in Australian engineering construction.

Beyond Valemus, the broker expects “meaningful” first profits in FY12 from LLC's recently secured “mixed use” developments, with a highlight being the first earnings flow from Barangaroo due end 2011.

Finally the broker believes the Australian residential market will be supported by the recent interest rate cut and by ongoing labour market strength which should underpin medium term earnings.

The FNArena database shows a consensus 12-month target for Lend Lease of $9.84 offering upside in excess of 30%.

Note that the sole stockbroker in the FNArena universe that rates Lend Lease Neutral does not dispute there could be value up for grabs, it's just that BA-Merrill Lynch doesn't see much happening with the share price as long as macro-concerns linger.

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