Lend lease reported a 13.

5 per cent increase in profir for 2004-05, why was the share market
unimpressed

Although Lend Lease's 13.5% rise in underlying profit for 2004-05 and guidance
of double-digit growth for 2006 were reasonable enough, the market was not
impressed.
Against the 52-week high of $14.24, the price is now $12.91. The problem is lack
of excitement, compared with its history as a glamour stock. Lend Lease has done well
to produce a growth business after its disastrous plunge into United States property
funds management, but what remains is largely a retail and residential development and
construction group, with a property investment portfolio thrown in.
It is an international business, with substantial activities in the United States and
Britain as well as Australia. It has undertaken prominent projects, including cleaning up
the World ~rade Center site after the September 1 1,2001 terrorist attacks. But no one is
getting excited about largely cyclical industries. Lend Lease tias not entered the glamour
infrastructure areas such as toll roads and tunnels, and has no plans to do so.
In private, competitors snigger at those behind Lend Lease naively selling its MLC
funds management business just as the Australian superannuation boom was about to
get going, to dive into the unknown world of US property.
Of course, that all happened before present chief executive Greg Clarke was hired.
His job was to knock what remained into shape and he is generally seen as having done
a good job. But there are questions about why Lend Lease's bid for General Property
Trust failed and whether Clarke should have moved faster and more aggressively and
put his foot on a sizeable unit-holding.
GPT was effectively Lend Lease's captive institution. The relationship had been
mutually beneficial. Lend Lease made substantial fees as GPT's manager and this
annuity income provided a balance to Lend Lease's more cyclical businesses.
There is still a substantial amount of investment income flowing from top-class
investment properties such as the Bluewater shopping centre in Britain and the King of
Prussia mall in the US. Investment income amounted to 22% of 2004-05 earnings and
the long-term aim is to lift this to 30-35%. One benefit of this would be a strengthening
of Lend Lease's credit rating, but Clarke concedes that this annuity income goal will
take some years to achieve.
At $12.91, Lend Lease shares yield 4.4%, based on the 2004-05 dividend of 57~.
The payment is partly franked and the outlook is for more of the same. Chief financial
officer Roger Burrows says that with about a third of earnings coming from Australia, the
franking credits should be enough to provided 40-50% dividend franking on a 60-8O0Io
profit payout.
This means investors need a higher yield than would be required from a comparable
company paying fully franked dividends. The present price reflects this. As a result, the
return looks reasonable, certainly if double-digit earnlngs and dividend growth can be
sustained.