About: Lend Lease is an Australian company that specialises in the construction and management of large property and infrastructure building projects, with activities in over 40 countries. Lend Lease also has large investment management business focused on property and infrastructure. The development and construction activities represent respectively 40% and 24% of FY 2017 EBITDA, of which 60% originates in Australia. The investment management division represent the remaining 36% of FY 2017 EBITDA.

Why it is in the portfolio: Lend Lease provides the portfolio with exposure to the cyclical uptick in infrastructure spending and construction activity in general. In addition, Lend Lease trades on reasonable fundamentals relative to the broader market.

Fundamentals: Lend Lease currently trades on a price-to-earnings ratio of around 12x forward earnings and a price-to-book ratio of 1.6x. Lend Lease offers around a 4% to 4.5% gross dividend yield at a dividend payout ratio of around 50%. At around 11%, Lend Lease’s level of debt-to-assets seems to be relatively conservative.

What could go wrong: While Lend Lease provides the portfolio with exposure to infrastructure and construction activity globally it still is dominated by Australian projects and therefore more closely linked to the general prospects of the Australian economy. On the development and construction front, Lend Lease is dependent on completing projects in-time and on-budget in line with there contracts, therefore if any contracts turn problematic due to cost overruns or project delays this may impact Lend Lease's profitability on those projects. Lend Lease may be susceptible to changes in interest rates for two reasons: firstly, investor demand for yield generating assets means that they may trade as ‘bond proxies’ and secondly the cost-of-capital linked to the underlying debt of the business maybe susceptible to changes in interest rates (although Lend Lease's debt is relatively low). Therefore, any upward change in interest rates may impact Lend Lease negatively.