5 Property and Infrastructure Stocks – Lendlease, Stockland, Macquarie Atlas, Cimic and Downer

Lendlease Group

LLC Details

Australian construction business weighing heavy on stock: Lendlease Group (ASX: LLC) stock lost over 10.5% on October 18, 2017as the group forecasted their FY18 performance to be impacted by the Australian construction business which relates to a small number of engineering projects. Hence, the EBITDA contribution from the Australian construction business has been indicated to be lower in the half year 2018 as compared to the prior corresponding period (pcp). On the other hand, the group believes that this weak performance would be offset by the outperformance in the other parts of the business. LLC expects their Australian development business to perform strong while their international diversification continues to progress well.
 

Diverse pipeline (Source: Company reports)

The group is delivering projects in London, Singapore, Kuala Lumpur and the United States. They made a joint venture with Softbank Group to develop and own telecom infrastructure assets in the United States wherein each of the parties has committed US$200 million equity to fund identified seed assets of over 8,000 rooftops and other telecom sites. The joint venture is aiming for US$5 billion of telecom infrastructure assets over the medium term. Meanwhile, LLC has sold 25% of their Retirement Living business to APG Asset Management and is retaining the rest of the 75%. We give a “Hold” on this dividend yield stock at the current price of $ 16.65


LLC Daily Chart (Source: Thomson Reuters)

Stockland Corporation Ltd

SGP Details

Strong residential business: Stockland Corporation Ltd (ASX: SGP) has started FY18 with record pre-sales of 5,811 lots. The group has over 70% of their assets in Commercial Property and has delivered a comparable growth in funds from operations (FFO) of 3.4% across their portfolio for FY17, with 3.5% in Retail, 3.6% in Logistics and Business Parks, and 2.3% in Office. 

FY17 performance (Source: Company reports)

But the group’s Residential business is performing strongly and has settled a record of 6,604 lots in FY17, which is an increase of 7.6% as compared to FY16. The segment generated a solid operating profit (FFO) growth of 17.4%, and enhanced return on assets to 20.8% on the core portfolio. Their residential segment added around 9,900 lots to inventory during the period driven by acquisitions. SGP now forecasts FFO per security of 5.0-6.5% in FY18. Trading at a solid dividend yield, we give a “Hold” recommendation on the stock at the current price of $ 4.37


SGP Daily Chart (Source: Thomson Reuters) 

Macquarie Atlas Roads Group

MQA Details

Increased distributions: Macquarie Atlas Roads Group (ASX: MQA) expects a distribution of 23.5 cents per share for 2018 as compared to 20 cents per share in 2017. This is at the back of delivering growth from existing portfolio while focusing on active asset management. The group has delivered traffic, revenue and EBITDA growth across all their segments in the first half of 2017.


First half of 2017 performance across all assets (Source: Company reports)
 
The group had earlier announced about acquiring 9.72% of MAF2 for €440m and this will increase its MAF2 interest to 50.01% and in APRR to 25% (from the previous figure of 20.14%). On the other hand, the group’s Greenway has suffered soft traffic scenario and overall growth is likely to be slightly negative. MQA stock rallied over 7.1% in the last six months (as of October 17, 2017) and we maintain a “Hold” on this dividend yield stock at the current price of $ 5.64


MQA Daily Chart (Source: Thomson Reuters)

Cimic Group Ltd

CIM Details

Supporting growth of renewable energy market: Given the recent infrastructure boom, Cimic Group Ltd (ASX: CIM) is expected to have earnings growth in the future. Lately, CIM reported that their firm, UGL got a contract by Foresight Solar Australia to design and build stage one of the Bannerton 110MW Solar Park, near Robinvale in Victoria. The contract would generate revenue to UGL of over $133 million, during a three-year term while the contract would start in late 2017, and is forecasted to be generating power to the grid from July 2018. On the other hand, CIM group generated over 29.9% returns in the last six months (as of October 17, 2017) and is currently trading at a higher price to earnings scenario. We believe that it might be prudent to wait for more positives from the group given the trading scenario, and put an “Expensive” recommendation at the current price of $ 45.77


CIM Daily Chart (Source: Thomson Reuters) 

Downer EDI Ltd

DOW Details

Awarded contract for Yarra Trams franchise: Downer EDI Ltd (ASX: DOW) recently reported that Keolis Downer got a seven-year contract to operate the Yarra Trams franchise on behalf of the Victorian Government. The new franchise would start on November 30, 2017, and as a part of the new franchise, Keolis Downer would undertake a tram refurbishment program, which would revitalize more than 85% of the Yarra Trams fleet over the next five years. Meanwhile, the group’s reporting season had revealed good operational performance and there is a positive outlook from the infrastructure markets, however, the valuations look high. Primarily, DOW stock is trading at relatively higher levels after surging over 34.6% in the last six months (as of October 17, 2017). Further, pressure from labor inflation might impact the stock. We rate the stock to be “Expensive” at the current price of $ 6.99


DOW Daily Chart (Source: Thomson Reuters)

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